Wasn't sure just where to post this, since we don't have a specific thread for QDRO's...

Divorcing parties have not been able to come to an agreement on the separtion of assets. Judge wants to draft an order requiring that participant use a portion his Profit Sharing Plan balance to pay off all marital debt, with an additional portion to be paid to the ex-spouse, as alternate payee.

It would seem to me that QDRO payments can be made only to an alternate payee who is a "person" (i.e., spouse, ex-spouse or child).

Has anyone ever seen such a QDRO provision? If so, to whom (participant or alternate payee) is the amount paid to creditors taxable?

I guess an alternate approach would be to include the marital debt amount in the alternate payee's distributable portion, but what guarantee would there be that it would be used to pay off the marital debt?

My QDRO experience is (thankfully!) extremely limited, but this approach would not seem to pass muster.

Thanks for any and all responses!

I think you are on point. If I were reviewing this
order my opinion would be that it was not qualified
since "creditors" do not fall under the definition of
an AP.

The distribution must be paid to an alternate payee only.

As a matter of state law, the court could order the alternate payee how to apply the money, and that provision could be in the domestic relations order that is also a QDRO. But the order to the altnernate payee would only be enforced by the court and the plan administrator would disregard the instructions to the altnernate payee as long as the instuctions to the plan said to pay the alternate payee. Such an order might have unintended income tax consequences, but that is not the plan's problem, either.

As you said a QDRO can only apply to payments to an AP. If the plan permits inservice withdrawals the court could order the participant under the divorce decree (not the qdro) to withdraw the funds to pay off the debts. The employee would be subject to contempt if he failed to comply.