Division of Retirement Assets in a Divorce: Ask for What You Want - Be Precise
Growing up, many people hear, “You can’t get something if you don’t ask for it,” to learn to be more assertive rather than just accepting what life gives them. The same can be said for the division of retirement assets in a divorce. Each state has statutes and rules that may be the default for the division, and each plan may have further default rules for the division of such assets. But that’s exactly what those rules and statutes are – defaults in case the parties do not agree to something else.
Why is it Important to Know the Default Rules?
Sometimes, the default rules might be exactly what the party wants to happen. In this case, asking for something else does not make much sense. To know this, one must know the default rules. If your attorney is unfamiliar with them, it may be time to hire an expert to consult on the matter to ensure you’re doing the right thing.
What’s a situation in which the default rule might be what the parties want to do? Let’s say the parties agree that alimony shall be paid from a pension that’s already being paid out. Alimony payments typically do not get adjusted with cost-of-living adjustments. Most pension plans have a default rule that if the payment amount to the alternate payee (former spouse) is described as a dollar amount per month, then no cost-of-living adjustments will be applied, and the alternate payee will continue to be paid that dollar amount until the plan participant’s death (or the QDRO is vacated). In this case, the default rule is likely what the parties wish to occur.
If pension division language is described as a percent of the monthly payments or by a marital share formula/fraction, many plans have default rules that cost-of-living adjustments will also be divided in such fashion. How does this impact the alimony situation? If the parties intend that the alternate payee receive $2,000 per month, without the cost-of-living adjustments, but decide to phrase it as X% of the participant’s pension payment per month, then pension plan may interpret that to include the cost-of-living adjustments.
While cost of living adjustments are not much each year, over the lifetime of a pension, it can amount to hundreds or thousands of dollars a year, which does make a difference.
While this is undoubtedly an area where parties with more sophistication can try to use the default rules to their benefit, it’s better to keep transparency and negotiate in the open. Does the alternate payee want cost of living adjustments? Ask for them. Does the alternate payee want a survivor benefit? Ask for it. Does the pension plan participant want the alternate payee to pay for the survivor benefit? Ask for it.
What are the Consequences of Vague Language in a QDRO?
As a person preparing QDROs for pro se parties and attorneys alike, one of the hardest things we have to tell clients is that even though they have an agreement or went to court and have a judgment of divorce, they aren’t done figuring out the division of marital assets because some aspects of the retirement division are not described.
Why is this so hard? Because typically, by the time someone gets their QDRO drafted, they think they are at the end of the divorce road and can limit their contact with their former spouse. It can be emotionally rough on those parties when we tell them to go back to the negotiating table to figure out a few more things.
How can people be sure to address all issues in advance? Ideally, reach out to the retirement plan during negotiation or before trial, and be sure to know all elements of the plan that can be divided in the divorce. Then, ask for the division scheme your client wants.
What if you can’t reach the plan in time before the agreement needs to be signed or the trial in the matter?
Here’s a list of the most common terms that should be addressed in a QDRO for a defined contribution plan (401k, 403b, 457b, TSP plans, etc.):
Plan Name
Transfer amount
Valuation date
Market/investment experience
Payment of the Plan Administrator’s fee to review and implement the QDRO
And here’s a list of the most common terms that should be addressed in a QDRO for a defined contribution plan (pension, annuity type):
Standard pension
Pre-retirement survivor benefit
Post-retirement survivor benefit
Refund of contributions
Cost of living adjustments
Early retirement subsidies
Disability benefits
Shared or Separate Interest division
Note that these are only the most common terms for each list above and do not apply to all plans. It is best practice to get the information specific to the plans involved in your case and work directly with the plan. Most notably, some plans do not even accept QDROs or do not allow survivor benefits to a former spouse, so especially in those circumstances, it is important for your client’s future planning to make an effort to deal with the case-specific information. If you need assistance dividing retirement assets in your case, you call us at 240-396-4373 or email us at qdro@markhamlegal.com to see how we can work with you to serve your clients best.
