A vast majority of divorces are between couples over the age of fifty – a time when spouses may have significant retirement savings set aside in one or both spouses’ 401k or pension plans.
401k retirement or pension assets accumulated during the marriage can be divided in the divorce using a Qualified Domestic Relations Order or QDRO. A QDRO will instruct the plan administrator on how to pay the non-employee spouse’s share of the benefits and should be completed before the divorce is finalized.
Quick Look at the QDRO Process
- The process begins by gathering information and preparing a draft of the QDRO using a Summary Plan Description (SPD) and Written QDRO Procedures (WQP) obtained from the retirement plan to be divided. Included are pertinent information about the parties – names, addresses, SSAN, etc. – and details indicating how much of the funds each party will receive.
- After both parties and their respective attorneys approve the draft, the draft will be sent to the retirement or pension plan for approval in draft form. It is not unusual for the plan to request at least minor changes to the QDRO to conform to the plan’s requirements. Keep in mind, however, that some plans decline to review draft QDRO’s.
- When the QDRO has been approved by both parties and their attorneys, and the draft has been reviewed (when applicable) by the plan, parties to the divorce will sign the QDRO and present it to the family court for signature by the judge.
- Certified copies bearing the original signature and seal of the clerk of court should be sent to the plan for final approval, acceptance, and payment.
One obvious advantage of having a QDRO completed and approved by the plan administrator before a divorce is finalized is to rule out any conflict between what the QDRO requires and what the plan is able to do. For example, if a QDRO states that an immediate lump sum amount is to be paid to the non-employee spouse – money he or she may be counting on to pay legal fees and get a fresh start – and the plan is prohibited from lump sum payments, the spouse may be in a pickle. However, if the divorce is not finalized, he or she can request equivalent property – cash, stocks, or other – to make up for the anticipated lump sum before the divorce is finalized.
Keep in mind that many pension plans do not pay a lump sum amount, but will instead pay a non-employee spouse on a monthly basis starting at retirement age which could be years in the future. Also consider that in the event of an ex-spouse’s death after the divorce is finalized, but before a QDRO is officially approved, can result in a change to the available benefits. Because there can be some unknowns, it is important to work with an experienced attorney well-versed on QDRO’s to avoid any missteps.
When you are considering divorce and have questions regarding how retirement funds are divided, or the QDRO process specifically, contact the Libertyville, Illinois family law offices of Ronald L Bell & Associates P.C. for answers at 847-495-6000.