July 31, 2011
Professional Services: Hiring A QDRO Attorney After Your Divorce
When people need to divide retirement funds after their divorce, if those funds are in a 401(k) or a pension, usually people have to go through a process mandated by federal law—filing a Qualified Domestic Relations Order (QDRO) with the court and then serving the order on the account’s plan administrator. If the employee spouse goes into their HR department with that news, they are often given a sheaf of information including a template QDRO with instructions for filing it with the plan administrator. It seems a simple process to just follow that advice, but to do so can be a trap for the unwary, as there are many nuances to the QDRO process.
For instance, QDROs can be written in a way that benefits the employee. How do you think the non-employee spouse would feel about that if they knew? Conversely, it can be written to give the non-employee spouse the power to impact the employee’s future options for distribution. QDROs can be written in a way that works best for the plan administrator, rather than the employee and non-employee spouse. QDROs can even be written in way that means that one or both people can have to pay more taxes than they would otherwise.
For instance, if someone uses a template they got from their HR, or an online resource, or such, to divide pension benefits, can you answer: what would happen to the status of the benefits if the employee had gotten married again before dying? I think that’s something the non-employee spouse would like to know during the QDRO process. Another example, what if the employee chooses to retire early, or not at all? How does that affect both people’s access to benefits? What if the non-employee spouse is able to elect their benefits in a way that doesn’t allow the employee to give death benefits to his or her new spouse?
So just like many legal processes—such as divorce, wills, trusts—we can all find resources that break down the necessary paperwork into fill-in-the-blank forms. But are the people behind these resources QDRO experts working for your best interests? No. In contrast, attorneys who specialize in the QDRO process are accustomed to educating people on how the QDRO can be drafted and asking them to define their goals for the future as relates to what they would expect to happen in projected future circumstances. QDRO attorneys are experienced in working with plan administrators to convince them to effectuate QDROs that are written for their clients’ best interests, not the narrow requirements that plans often try to force on their customers for ease in uniformity and processing. So before you use that template from HR or the plan administrator, remember the long-term, drastic impact that retirement benefits can have on your financial future and ask yourself if it seems worth it to spend the energy on one last aspect of your legal divorce process by working with a QDRO attorney.