What You Need to Know About Qualified Domestic Relations Orders
A Qualified Domestic Relations Order (QDRO) directs your pension plan administrator to give a portion of it to your ex-spouse after the divorce is final. There are several common mistakes people make when considering a QDRO that can be avoided.
Remember, a QDRO is not a neutral document, and should be tailored to benefit you.
The following is a common scenario involving the QDRO:
- A settlement agreement states that retirement assets will be equally divided between the husband and wife.
- Three months later with a QDRO in hand, the couple finds out that the 401(k) has gone down in value and the non-qualified pension plan can't be divided.
- At this point, it's necessary to determine the plan's official division date and whether or not equivalent assets, temporary benefits, or cost of living adjustments in the plan were considered in the divorce decree.
This was an example of a common problem that arises because QDROs have only been around since 1984 and there is still confusion among some family law attorneys regarding splitting retirement plans.
Obtain the Right Information
Every retirement plan is a little different. Some companies offer a plan with early retirement buy outs, supplements, or temporary benefits that drop once a person becomes eligible for Social Security. Others offer non-qualified plans that can't be divided.
Because of all the possible variations of your plan, it is necessary to obtain the correct information during the negotiation phase. Once you and your spouse have agreed to a settlement, the time table passes for discussing supplements or alternative payments. Without the right information, the difference could be getting (or losing ) 50% of $4,000 each month or 50% of $2,000 each month.
These issues can be avoided during the Discovery phase of your case, as long as a plan administrator is an early part of the discussion. Your family law attorney can bring in a pension expert to draft the QDRO, as someone with that experience will understand multiple retirement plans and their various stipulations.
Retain Your Own QDRO Drafter
Only one QDRO drafter is retained in some divorce cases, and that can lead to some issues. QDROs are not neutral, and should be written to advocate your case against your spouse's case.
For example, a couple's divorce decree states that the wife will receive $1,000 from her ex-husband's pension every month. As an act of retaliation, the husband says he won't retire so his wife can't have any of his pension.
However, the QDRO drafter hired by the wife's attorney wrote the document using the "Separate Interest Division" so the wife would receive $1,000 at her ex-husband's earliest retirement age, making his actual retirement irrelevant towards her monthly checks.
If the husband and his attorney understood why a QDRO drafter was important, they would've hired a drafter to write in the "Shared Benefit Approach." This ensures the ex-wife would have to wait until her ex-husband retired to receive any payments.
Start Early, Don't Wait on the QDRO
Do what you can to enter the QDRO as soon as possible to avoid lengthy delays in the judgment and exposing yourself to liability. It could take months to draft a QDRO and have a plan administrator approve it. Time is of the essence because some companies will not review a "draft" of a QDRO.
For example, a couple that has been married for 25 years is getting a divorce that dictates the wife will receive half the husband's pension. Before the QDRO is approved, the husband dies, which voids the ruling of the divorce decree. The wife could re-open the case and enter the QDRO nunc pro tunc, but that is expensive and time consuming.
Don't Use an Employer-Provided QDRO
While a sample QDRO provided by an employer may be easy to do, the truth is it is only simple to the employer and just as hard for the spouses. Remember, a QDRO is not a neutral document, and should be tailored to benefit you rather than make it an easy decision for the plan administrator.
It's alright to use the sample QDRO as a guide, because if gives the drafter an idea of what the plan administrator looks for in terms of wording ("supplement" instead of "subsidy"). But the sample QDRO's role should not extend beyond providing a basic format.
Ignoring Problems Doesn't Make Them Go Away
Ignoring a pension will not make the issues go away. Some attorneys might even choose to ignore a QDRO because they can be complicated, but this is not a good thing for you. QDROs are best dealt with during the Discovery phase of your case before it is finalized. Hire a QDRO expert and you're guaranteed minimal problems.
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