Get Your QDRO Done

One of the biggest post-divorce financial mistakes clients make is to put off having the necessary QDRO prepared, pre-qualified, signed by the Court and served on the Plan Administrator.

In order to distribute the marital portion of any pension plan (defined benefit plan) or 401k plan (defined contribution plan) there must be a properly prepared and approved Qualified Domestic Relations Order (QDRO). The failure to follow all of the necessary steps successfully and timely leads to many delays, possible loss of monies and expensive legal proceedings to correct the problems created by the delay.

Clients sometimes weary from the expense of the divorce proceedings or mistakenly believing that the other spouse or other attorney is taking care of the QDRO can often discover years later that they either did not receive their share of 401k funds and now due to the rise and fall of account balances find themselves in a much more difficult situation of calculating what they are owed. To further complicate matters, records may not be available because companies have merged, been sold, closed or the ex-spouse might have taken all of the money. The Plan may have changed as well because even a still existing company may have changed the Plan Administrator years ago and the old records may not be available.  Plans that do not know of the divorce and QDRO will not restrict the worker from borrowing or taking money from the account.

Even more difficult to correct are the pension problems that come from the retirement of a former spouse and the failure to protect the rights of the ex-spouse (non-participant or "alternate payee"). Many divorce agreements will require that the non-participant be designated to have survivorship rights but if the QDRO was never prepared the Plan Administrator is unaware and pension payments may start without any funds sent to the ex-spouse. This not only creates problem with collection of monies already paid to the retired spouse but it creates problems with attempting to obtain correction of the future retirement benefits. Not all plans will allow for correction of survivor benefit options after payments have begun. Even with proof of a violation of a court order, the process of correction can be difficult and limited.

I never recommend that the attorney for the participant (working) spouse prepare the QDRO, rather I seek that the working spouse pay or pay half of the cost for the non-working spouse's attorney to prepare the QDRO and have it filed. The reason is simple: the working spouse has no incentive to get this done as it will ultimately reduce his/her pension or 401k. The motivated person is the one who will benefit and therefore that person should want their attorney to stay on top of the completion of the QDRO and filing with with the Plan Administrator.

This is definitely an area where money initially saved is a false illusion due to the complexity of the problems that delay usually will cause.