Common Problems with QDROs 18

A Qualified Domestic Relations Order or QDRO is a legal tool used to divide retirement accounts. Specifically, it is a court order signed by a judge, which directs the plan administrator of the husband’s or wife’s pension or 401(k) to distribute a portion of those funds to the other spouse. The transfer is accomplished without implicating any penalty or tax payment requirement.

The legal ins-and-outs of drafting a valid QDRO can be tedious and complicated, which is why some divorce attorneys outsource the handling of QDROs to QDRO specialists. Other attorneys prefer to draft and submit QDROs on their own. Either option, of course, is fine, assuming that all the legal QDRO requirements are met. Retirement plan administrators are not allowed or required to follow the terms of any court order purporting to assign retirement benefits unless it meets the requirements of a QDRO.

So, what are the most common problems with proposed QDROs?

Surprisingly, the most common shortcoming is a failure to clearly specify the amount or percentage of the benefit that should be paid to the alternate payee (the non-employee spouse). If it is less than clear as to the amount or percentage, it will be rejected by a plan administrator.

This problem often crops up when the participant spouse is not fully vested in his or her employee benefit plan. If the QDRO divides the participant’s interest in the plan by percentage but fails to reference the amount of the vested interest as compared to the unvested portion, the QDRO is ambiguous and will be rejected.

A similar problem will occur if the participant has taken a loan from his or her 401(k). A QDRO that is unclear as to whether the division is to be a percentage of the full vested account balance or the actual value of the investments will also be rejected.

Another common QDRO problem is an improper requirement that the plan provide any form of benefit not otherwise provided for. A simple example of this is when a plan is invested in an investment that is closed to new investors and the plan itself does not allow for in-kind distribution. The QDRO cannot require the plan administrator to do something otherwise prohibited by the plan itself.

The passage of time can also create problems with the approval of a QDRO. There is no time requirement for the submission of a QDRO following a divorce. However, a delay of any length can increase the risk of problems. If the participant takes a significant distribution from the plan prior to approval of a QDRO, tracking down and collecting the funds after the fact may be difficult or impossible.

While almost every divorce attorney has a QDRO horror story or two, trouble can be easily avoiding by communicating closely with the plan administrator throughout the QDRO process and being vigilant about the approval process following your divorce.

Looking for legal answers?



Discussion

  • Cynthia Williams

    Question: My final court ordered divorce decree awarded me 30% of my ex-husbands federal government retirement once he retired. He put in retirement paperwork in November 2010, to retire on December 31, 2010. I contacted Office of Personal Management as soon as I knew he was retiring. I asked what paperwork I needed to send to them so that I could receive my portion when he retired. The only asked for the divorce decree and property settlement which I supplied to them. They asked me if I had a qdro, I told them I didn’t know what that was and I didn’t have one. They contacted me and said that my benefits were approved. I found out today that if my ex-husband dies before me that my benefits stop. I had no idea that was the case. Since there was never a qudro sent, but I was approved, what can I do to get a qudro done and have survival benefits added? Surely if my attorney had told me that I was entitled I would have had that put in the paperwork. Who wouldn’t?

    Thank you for any answers and suggestions can provide.

    Cynthia

    • QDRO Center

      Cynthia – I am so sorry for the situation you find yourself in. Believe me, you are not the first woman to be in this situation and it’s fairly common. You sound like you did all that you could at the time and seems that you are a very diligent person on top of her business. The only thing you may have done wrong was to trust that your benefits were approved, but who wouldn’t in your situation, it’s a federal government agency telling you so. Not your fault. Now, about what you can do….although I do not know a lot of background information, this seems to be the result of your ex-husband, unbeknown to you, presenting a QDRO himself for approval, and the QDRO did not contain any language that would give you survivorship benefits (so payments would not stop if he would pass away). If the payments to him started, you may not be able to change the survivorship provisions if he is receiving a single life annuity form of pension and you just get a portion (30%) of that payment he gets every month. By choosing a single life annuity, he gets more money now, but the other side of the coin is that you stop getting benefits if he dies. If he would have gotten a husband and wife life annuity, he would be getting less money now (and you too) but you would be guaranteed to continue receiving benefits after he passes. If the Office of Personnel Management accepted the QDRO your ex-husband presented (if that is what happened here) and did not communicate with you or your attorney during the approval process, then you may have a chance to have this corrected somehow because it was probably an oversight on their part to not communicate with you. It is likely that they have a duty to communicate with both parties equally when approving and processing a QDRO because a QDRO is not a neutral document. Whether they had to communicate with you or not will be provided in their QDRO Procedures. If they did not follow their QDRO procedures properly, then that would give you a possible window to fix this. It really matters what a QDRO says because when one party gets something in a QDRO, it necessarily means that the other party gets less. It’s like splitting a pie. There is no way that both would get more. The more one gets, the less the other is left with. I would encourage you to request from the agency that approved your benefit a copy of their QDRO procedures (or any other rules they may have relating to approval of division of retirement benefits pursuant to a divorce) and of any QDRO they may have on record pursuant to which they are paying you any portion of your ex-husbands’ benefits. Then, with those to documents in hand, seek the assistance of a lawyer who knows retirement plans well enough to be able to advice you on what options are really available to you to fix this, if any. Good luck and again, sorry to hear you came to discover this. Unfortunately is fairly common for ex-wives to be left out of benefits in similar manner.

  • sv1261

    I divorced in 2000 after 17 years of marriage. I was a stay at home mom for 10 years. I didn’t put in the Divorce Decree to get my percentage of my husband’s pension. Can I still file a QDRO now this many years later if my ex husband retired last year and he put his money into an annuity?

    • QDRO Center

      From a stand point of a retirement plan, or an annuity (you do not specify if it is an IRA or some other annuity payment), before putting a QDRO, you need to have the Divorce Decree that says that you are entitled to a portion of the retirement benefits of your former spouse. Again, from the stand point of a retirement plan, the QDRO can only exist if the Divorce Decree provides for the division of your husband pension. I am not a divorce lawyer, so you need to confirm that you can amend the divorce decree or that it is possible in the state you are in to actually enter a QDRO many years after the divorce was finalized. I think you can do it, but of course, your ex-husband has to agree to it and of course you must confirm this with a divorce attorney in your state. Then, if he already cash out his pension, and bought an annuity, you can only divide the annuity, not the pension that no longer exists if he already retired, cash it out, and now put the money in the annuity. If he is getting annuity payments, you may only get a shot at a portion of his monthly payments, if he agrees to share that. I am sorry your original divorce decree did not award you a portion of his pension. Now you are left to your ex-husband’s generosity. But in short, yes, you can still do a QDRO, if the Divorce Decree can be amended at all or a QDRO can be entered in your state after the divorce was finalized these many years later, and if your ex-husband agrees to a QDRO (he may well fight back and it will be up to the judge to decide whether a share of his benefit should have been given to you at the time of the divorce). Good luck!

  • MarkAM

    I, unfortunatly, am on my 2nd divorce. My first divorse states that my ex-wife gets 25% of my retirement. My current wife’s attorney says that she is entitled to 50% of my retirement, leaving me with only 25% for myself. I am of the opinion that my 1st wife should get the 25% mandated, and that my current wife and I split the remaining 75% in half (37.5% each). I have been told by others that this is the correct way, but I don’t know for certain. Any opinions? I live in California.

  • lj

    My husband was married to his first wife for 29 years. His divorce decree says that his exwife is to get 1/2 of what was earned while they were married. His QDRO says she gets anything left after he dies. Is there any way to change that, as they are both remarried? She will get her current husbands benefits and my husbands, leaving nothing for me. I believe it was the fault of his attorney. Is there any way to change it?

    • QDRO Center

      If benefit paymetns have not begun, then you may be able to change that, but you would need agreement from first wife and your ex-husband. I doubt she will agree to change things now for her to get less and for you to get more. Still, it may not be that she gets ALL that is left after he dies, she may be getting just a survivor benefit in relation to the years they were married. Just as anything he earned after the divorce will not go to her while he is alive, it won’t (shouldn’t) go to her, if the QDRO was properly written. Many QDROs are not well written because in matters so nuanced and complex as multiple marriages, many divorce lawyers or accountants who draft QDROs are not knowledgeable enough on retirement plan laws and rules, so they do not do the best job they could do. So, in short, you may be able to change it, but it will be difficult. But before you try to change it, I would recommend you have somebody knowledgeable on QDROs read the QDRO and interpret it for you in terms of what it really says as to how much would the first wife get after your husband’s death. Good luck!

  • charlane lopez

    Question: My final court ordered divorce decree awarded me 30% of my ex-husbands federal government retirement once he retired. He put in retirement paperwork in November 2010, to retire on December 31, 2010. I contacted Office of Personal Management as soon as I knew he was retiring. I asked what paperwork I needed to send to them so that I could receive my portion when he retired. The only asked for the divorce decree and property settlement which I supplied to them. They asked me if I had a qdro, I told them I didn’t know what that was and I didn’t have one. They contacted me and said that my benefits were approved. I found out today that if my ex-husband dies before me that my benefits stop. I had no idea that was the case. Since there was never a qudro sent, but I was approved, what can I do to get a qudro done and have survival benefits added? Surely if my attorney had told me that I was entitled I would have had that put in the paperwork. Who wouldn’t?

  • Dmraz

    Can a QDRO payment be used for a downpayment on a home and/or for starting a self-directed IRA?

    • QDRO Law Center

      Dmraz – Once you have received a QDRO payment (you have received a distribution from the retirement plan from which you were assigned a portion of benefits via a QDRO) you may use that QDRO payment for anything you may like to buy. I hope this helps and I hope you have a properly written QDRO. Nothing is most important in terms of division of retirement benefits than a properly written QDRO. A properly written QDRO will be one that awards you the most amount of money you could possibly receive based on the terms of the divorce decree and the terms of the specific retirement plan. You need to find a lawyer who knows retirement plans well enough to understand the nuances. Accountants usually do not have the legal skills to write a legal document such as a QDRO. Also, divorce lawyers may or may not know retirement plan laws and may miss some important language nuances. Find out if your QDRO is properly written before cashing out any QDRO payment. Once you receive your payment, there is little you can do to have your QDRO fixed. Even if the QDRO was approved, so long as you have not cashed the payment, you can still fix it.

  • QDRO Center

    If benefit paymetns have not begun, then you may be able to change that, but you would need agreement from first wife and your ex-husband. I doubt she will agree to change things now for her to get less and for you to get more. Still, it may not be that she gets ALL that is left after he dies, she may be getting just a survivor benefit in relation to the years they were married. Just as anything he earned after the divorce will not go to her while he is alive, it won’t (shouldn’t) go to her, if the QDRO was properly written. Many QDROs are not well written because in matters so nuanced and complex as multiple marriages, many divorce lawyers or accountants who draft QDROs are not knowledgeable enough on retirement plan laws and rules, so they do not do the best job they could do. So, in short, you may be able to change it, but it will be difficult. But before you try to change it, I would recommend you have somebody knowledgeable on QDROs read the QDRO and interpret it for you in terms of what it really says as to how much would the first wife get after your husband’s death. Good luck!

  • Ben

    I was divorced from my first wife 25 years ago. In the divorce decree she was awarded 1/2 of my retirement. QDROs were never done. Two years ago I retired. My ex was contacted and informed that if she intended to have QDROs to split my retirements then the QDROs need to be completed. She never responded. Now after two years she is requesting QDROs to be finalized. Help! Thank you!

  • Mzcine

    I was married for 21 years to a military spouse, he wanted out and did a quick divorce. I had no money for any legal help, I sent my paperwork into Defense Finance and Accounting Service (DFAS) I got a letter stating I need the numerator in my decree so I need the formula or a QDRO. So how can I get this added before 8/1/2013 Please email I need help asap. He try to pull a fast one on me, but that’s not going to happen. I’m so upset about not knowing about this. Thank you for your time and hope to hear from you soon.

  • Dthon

    I was divorced back in March of 2000. It was my ex-husbands responsibility according to the divorce papers that his 401k be split 50/50 and that he obtain the person to do it. He recently just informed me that he finally had the money to get a lawyer to take care of it. He told me that I will not get any interest over those 13 years according to his lawyer. This makes no sense to me. He should have done this 13 years ago, and I could have been collecting 13 years of interest in an IRA. I do not believe this can possibly be true since half of that money was mine since the year 2000. Is this correct?

    • Dear Dthon – you should find a lawyer knowledgeable on QDROs that will look after your interest. Your ex-husband’s attorney is looking after his interest only, not yours. You should be able to get interest since 2000, but it all depends on how the QDRO is drafted. You should really retain your own lawyer. Best of luck to you.

  • confused

    The company working on it has asked me to supply them with 25 years of my account statements, which would be very time consuming. When I filed for divorce the account balance of the 401K was included and feel that is the balance that should be divided (July 2011) at date of separation. The company states they need to calculate a rate of return? however in the Marital settlement it is very vague about details dealing with the QDRO. I live in California.

  • lost in paperwork

    After 22 year marriage, I was awarded 135000 in its entirety of my husbands retirement benefits in place of my equity in the marital home. My question is two-fold. I am on SSDI and if I cash in the pension plan (0we several creditors), will I lose my SSDI?

    A QDRO was completed and sent to the pension company. The divorce agreement was signed the beginning of June 2013. During that 90 day period that divorce is finalized can I still have my attorney file an objection to the agreement and go after the equity in the house? If there is a possibility of losing my SSDI if the pension plan I cash in is considered (income) by social security.

    Or is there a way to avoid losing my SSDI and still cash in part of the pension to pay my bills.

    Thank you for the help. lost in paperwork and in a daze in Massachusetts

  • Donna

    QDRO never completed and 401K rolled to different institution: I was divorced 6 years ago and paid an actuary (?) to determine the QDRO amount. The actuary never completed the assessment and now 6 years later I received a letter from my ex’ attorney stating the QDRO needs to be completed or I face serious legal action. The actuary I was instructed to provide the information (his attorney chose the actuary) has all the requested documents (provided 6 years ago – they cashed my check). They want a new actuary and re supply of all the documents. I don’t have the documents anymore (since lost my job and have moved out of state) and what was left of my 401K has been rolled to a new institution. I have completely complied with the divorce decree, what are my obligations at this point? Isn’t their responsibility at this point – there’s really nothing I can do.