By Dorothy A. Voigt, Jan 12 2016 08:08PM
Ideally, once the parties agree to a settlement of all issues in their divorce, the document to divide the retirement benefits, known as a Qualified Domestic Relations Order (“QDRO”), would be prepared at the same time as the Marital Settlement Agreement and entered on the date of the prove-up. However, it is not uncommon for the QDROs not to be entered at settlement. For a variety of reasons, the QDROs are often put off to be entered at some future date.
It is important that the QDRO be entered as soon possible after the Judgment is entered. If the QDRO is not entered the non-employee former spouse, otherwise known as the alternate payee, will not receive the retirement benefits which they bargained for in the divorce. If the attorney fails to get the QDRO completed and entered, or fails to instruct the client that they are responsible for finding another lawyer to draft the QDRO, it is malpractice.
There are many things that can happen after the divorce judgment is entered that can impair the alternate payee’s ability to obtain benefits. For example, if the employee / participant dies after the divorce is final, the former spouse alternate payee generally is no longer the beneficiary of the plan. If no QDRO has been entered to ensure that the alternate payee’s interest is protected, the funds are paid to whoever the plan determines the beneficiary is. The alternate payee may have no right to any funds.
Death is not the only issue that can impair the alternate payee’s right to benefits if no QDRO is entered. In a defined contribution plan, if the participant quits work, retires or is terminated, they have the right to roll the funds over to an IRA, another qualified plan at a new job or take a cash distribution from the plan and pay the taxes. If a QDRO is entered, the alternate payee’s portion of the benefits will belong to the alternate payee and cannot be transferred or cashed out by the participant. Once this is done, it becomes far more difficult, if not impossible for the alternate payee to track down the funds to receive their share.
Even if the participant does not change jobs, it is possible that the company (s)he works for may be sold, merge or split into two. For example, Quaker is part of Pepsi and Motorola divided into Motorola Solutions and Motorola Mobility. In that case, the benefits may be merging into another plan or be changed to a different record keeper. Time does not make tracing the benefits easier. If the QDRO were entered at the time of the divorce, the benefits would be transferred with the plans and the alternate payee would be informed of the changes and continue to be eligible for their share.
In a defined benefit plan, if no QDRO was entered, and the participant retired and took benefits in the form of a single life annuity, then the alternate payee may be able to obtain benefits for the lifetime of the participant, but will not be able to obtain benefits for their lifetime (presuming they outlive the participant). If the QDRO had been entered before the participant retired, the alternate payee may have been able to obtain benefits for their lifetime. Depending upon how long the alternate payee outlives the participant, a benefit of considerable value may be lost.
Don’t lose out on the retirement benefits you are due. Get the QDRO entered! If you are not sure how to proceed, please contact my office for assistance