Understanding QDROs and ESOPs in Divorce
Dividing retirement assets during divorce is a high-stakes process that requires attention to detail and a thorough understanding of the type of retirement plan involved. When the plan in question is an Employee Stock Ownership Plan (ESOP), the rules become even more specific. In this article, we’ll break down exactly how to handle a Qualified Domestic Relations Order (QDRO) for the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan, including unique factors like stock valuation timing, diversification rights, and put option rules.
At PeacockQDROs, we’ve completed thousands of QDROs from start to finish. That means we don’t just draft the order and leave you to figure out the rest. We handle the drafting, preapproval (if applicable), court filing, submission, and follow-up with the plan administrator. That’s what sets us apart from firms that only prepare the document and hand it off to you.
Plan-Specific Details for the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan
- Plan Name: 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan
- Sponsor: 1st source corporation employee stock ownership and profit sharing plan
- Address: 1ST SOURCE CORPORATION, 100 North Michigan Street
- Effective Date: Unknown
- Status: Active
- Plan Type: ESOP and Profit Sharing
- Industry: General Business
- Organization Type: Business Entity
- Plan Year: Unknown to Unknown
- Participants: Unknown
- Assets: Unknown
- EIN: Unknown
- Plan Number: Unknown
What Is an ESOP?
An ESOP is a retirement plan that invests primarily in company stock. Participants in the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan build their retirement savings not through mutual funds or bonds, but primarily through shares of 1st Source Corporation stock. This creates extra complexity during divorce because the assets involved are not easily divisible cash or market-traded investment accounts—they are shares in a company that must be valued and distributed carefully.
Unique QDRO Considerations for the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan
1. Stock Valuation Timing
Stock in an ESOP like the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan is not publicly traded, which means its value is determined on an annual basis by an independent valuation. This valuation date is key to any division in a divorce. If the QDRO does not clearly identify the valuation date used to calculate the alternate payee’s share, disputes can arise over the proper amount to allocate.
To avoid this, the QDRO must state whether the division is based on the participant’s account as of the most recent valuation (for example, December 31 of the prior plan year) or another specific date. Since ESOP valuations are not updated daily like public stock prices, this detail is crucial.
2. Distribution Timing Rules
With traditional retirement accounts, the alternate payee often has more flexibility in taking distributions. That’s not the case with an ESOP. Under federal law, and specifically for a plan like the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan, distributions may be delayed until the participant separates from service, reaches retirement age, or otherwise meets a distributable event.
Additionally, even once a distribution is permitted, the plan may set rules about how and when payments are made—typically in installments or lump sum at the administrator’s discretion. The QDRO should be drafted with those timing constraints in mind and clarify whether transfers will occur immediately or be subject to plan-based distribution schedules.
3. Diversification Rights
For participants age 55 and older with at least ten years of service, ERISA rules require that they be given the opportunity to diversify a portion of their ESOP holdings into other investments. However, this right does not always automatically extend to alternate payees receiving a share through a QDRO. The language of the QDRO can affect whether the alternate payee receives this diversification option or whether distributions will remain in company stock form only.
When dividing the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan, careful QDRO language is needed to either allow or waive diversification rights for the alternate payee.
4. Put Option Provisions
Because the company stock in an ESOP like this one is not publicly traded, the plan is typically required to offer a “put option” to allow participants or alternate payees to sell their stock back to the company at a fair market price. This is a vital aspect of liquidity in ESOP distributions.
The put option generally lasts for a limited window, often 60 days following a distribution. Alternate payees unaware of this timeline risk losing the ability to cash out their stock and may end up holding non-marketable shares. A sound QDRO and knowledgeable counsel will help ensure that clients understand how and when to exercise this right when receiving shares from the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan.
What the QDRO Must Include
To divide the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan in a divorce, the QDRO must include:
- Correct plan name: 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan
- Plan sponsor name: 1st source corporation employee stock ownership and profit sharing plan
- The participant and alternate payee’s identifying information
- Clear valuation date or formula (e.g., “as of the most recent plan year ending prior to the date of divorce”)
- The form and timing of distribution
- Ownership rights (such as stock or cash and presence or absence of voting rights)
- Designation of diversification rights if available
- Address how the put option should be handled
- Plan number and EIN—must be obtained and included for administrator approval
Common Pitfalls to Avoid
Our firm has reviewed countless QDROs prepared by other attorneys or DIY services that failed to account for the unique aspects of ESOPs. Common mistakes include:
- Leaving out the valuation date or method, leading to disputes during execution
- Failing to address how or when company stock is converted to cash
- Not mentioning diversification rights, resulting in alternate payees being stuck with stock they can’t diversify
- Missing the timing window for the put option after distribution
For more about pitfalls, check out our post on common QDRO mistakes.
How Long Does a QDRO Take?
The QDRO process timeline varies widely depending on the plan and the court’s schedule. While many people expect a QDRO to take a few weeks, the real timeline can be much longer if preapproval is needed, if the plan administrator is slow to review documents, or if court filing procedures are complex. Read our in-depth guide on the 5 factors that determine how long QDROs take.
How PeacockQDROs Can Help
Many firms will hand you a draft and send you on your way. That’s not how we work. At PeacockQDROs, we take care of everything—from start to finish—including the drafting, submitting for preapproval, court filing, administrator submission, and follow-up. We maintain near-perfect reviews and pride ourselves on a track record of doing things the right way.
Visit our main QDROs page to learn more or contact us for tailored help with your situation involving the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan.
Final Thoughts
Dividing the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan during divorce requires special handling due to its ESOP nature. Stock valuation dates, diversification rights, put options, and distribution timing rules all need to be precisely addressed in a QDRO to ensure a clean and enforceable division of assets. Don’t risk a generic QDRO for a specialized plan—make sure your order is prepared and executed by people who know what they’re doing.
If your divorce was in California, New York, New Jersey, Connecticut, Kansas, Missouri, Iowa, or North Dakota, and you have questions about qualified domestic relations orders or dividing retirement assets like the 1st Source Corporation Employee Stock Ownership and Profit Sharing Plan, contact PeacockQDROs. We specialize in QDROs and have successfully processed thousands of orders from start to finish.
Get the answers you need—explore our QDRO resources or reach out for personalized help if you’re in one of our service states.