By David Brandolph
Divorce can be both emotionally traumatic and financially devastating – especially to older women who are as much as three times as likely as men to be below the poverty line in retirement.
That’s why it’s important for older women and all others experiencing a divorce to know that they may be entitled to a share of their former (or soon-to-be former) spouse’s 401(k) and pension benefits – which are likely to be among the most valuable financial assets in a marriage. Under the law in most states, retirement plan assets earned during a marriage are considered to be marital property that can and should be divided. It’s therefore advisable for couples to make these assets part of their property settlement agreement negotiations and their divorce decree.
If you, or someone you know, is navigating a divorce, this blog is for you. It explains some of the steps you should take to protect yourself and highlights potential pitfalls that can deprive you of your legal right to a portion of retirement benefits. Not receiving your rightful share can make the difference between retiring with adequate income – or ending up financially insecure.
Here are some questions to ask: What retirement plan(s) does my spouse participate in, what benefits have been earned, and how much will be payable at retirement? This information can be obtained by asking your spouse directly or by contacting the companies that your spouse worked for during the marriage. If the plan does not respond to a written request for information, the Employee Benefits Security Administration can assist with obtaining the information (call 1-866-444-3272 or submit your question online). Another option would be to have a lawyer subpoena the information.
Armed with such knowledge, you (or your lawyer, if you have one) can negotiate the division of your marital property, including retirement benefits. In divvying up marital assets, parties should make sure that the divorce decree clearly lays out whether and how retirement benefits earned during the marriage will be split. For pension benefits, you also need to be certain that the decree addresses whether survivor benefits will be awarded. This should be done before the divorce is finalized because it’s almost impossible to make changes later!
Often, a regular divorce decree is not enough to obtain the benefits awarded in the divorce. Once you have obtained a decree (or court approved property settlement agreement) that spells out how the retirement benefits are to be divided, you will need a Qualified Domestic Relations Order (QDRO). The QDRO is sometimes written as part of the divorce decree but usually it’s a separate document.
The QDRO is a detailed legal document that must be submitted to and approved by a retirement plan before it will pay a former spouse (known as an alternative payee in pension lingo) his or her share of the ex-spouse’s benefits. The QDRO must contain information required under the federal pension law known as the Employee Retirement Income Security Act of 1974 (ERISA).
This document doesn’t become qualified until it’s accepted by the plan and thus, some people refer to it as a domestic relations order or DRO before it is accepted. You might think of the DRO as a caterpillar. Once it’s accepted by the plan it transforms (butterfly-like) into a beautiful protective legal document—now called a QDRO.
It’s critical to submit the QDRO to the plan for acceptance as soon as possible, since if your spouse dies or remarries before the QDRO is submitted, your ability to get a share of these benefits could be put in jeopardy. This is also true if your spouse retires or withdraws funds.
It’s worth pursuing a QDRO to secure your financial future even though the path to getting one can sometimes have obstacles. Although you shouldn’t be discouraged, you should know that many divorce attorneys are unwilling to draft QDROs because of their complexity and it may be difficult or expensive to find someone else to draft it.
Nevertheless, it’s important to have someone who is competent draft the QDRO because plans may ultimately reject the order if it doesn’t comply with ERISA or the plan’s specific requirements. This could mean that you’ll need to have the QDRO redrafted, resubmitted to the court and then sent back to the plan, all of which are time-consuming and expensive endeavors.
Keep in mind that QDROs only apply to private-sector employer plans and while government and church retirement plans often have a similar document that they require to divide the benefits, such public-sector and church plan documents often have different names and requirements.
Those who remain uncertain about dealing with QDROs should know that the PRC has launched an Initiative on Women and Retirement at Divorce to bring together a range of experts and organizations to make the QDRO process easier and more efficient for everyone involved. Additional information will be posted as it’s developed.
PRC also has a helpful guide offering tips for individuals going through a divorce. The guide was created by the Pension Rights Center, the National Council of Juvenile and Family Court Judges’ Resource Center on Domestic Violence: Child Protection and Custody, and the National Clearinghouse on Abuse in Later Life.
Below are more links to divorce and retirement financial security materials.
These are links from the Women’s Institute for a Secure Retirement (WISER):