Can an Attorney Collect Fees Via QDRO?

Distributions pursuant to a QDRO may only be payable to an alternate payee (IRC §414(p)(1)(A)) and pursuant to IRC §414(p)(8), an alternate payee is defined as any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant. Since an attorney does not meet the definition of an alternate payee, a plan will not make direct payment to an attorney.

That being said, this doesn’t prevent one from receiving “indirect” payment. A QDRO may provide that any correspondence to the alternate payee be submitted to an alternative address (i.e. attorney’s office). The address in the QDRO is where all correspondence, including the distribution check, will be sent. However, there is nothing to prevent the alternate payee from changing that address after the QDRO has been submitted to the plan for acceptance. If the distribution check is submitted to the attorney’s office, the alternate payee can then be instructed to indorse the check over to the attorney. Keep in mind that if you decide to take this route, there will be tax withholding on the distribution, and you will need to increase the awarded amount to account for this.

The risk you assume is that the alternate payee can refuse to take a distribution or change the address to which the distribution check is sent. Attorneys cannot force the alternate payee to make payments from the retirement plan assets while the assets reside in a retirement plan, as they are exempt assets and are not subject to collection for dept. IRC §401(a)(13).

If you have any questions regarding this topic or others, please feel free to contact me at (281) 288-4773 or message me.