Although the media focuses on their big spending, divorce and poor retirement planning are among the top reasons why most pro athletes go broke within 10 years of retirement. Retirement planning can be challenging for most, and when coupled with divorce, can be disastrous if not done right.
One of the most confusing and misunderstood aspects of divorce involves the distribution of retirement assets. If the court or your marital settlement agreement orders that retirement assets be divided between you and your spouse, or if retirement assets must be liquidated to collect child support or alimony, a key component of your divorce settlement will consist of a Qualified Domestic Relations Order (QDRO). A QDRO directs a retirement plan administrator to distribute all or a portion of a person’s retirement plan, pension, 401k or other employee-benefit plan to an alternate payee:
If the QDRO does not conform to the plan administrator’s requirements, the company can reject it despite court approval. We therefore obtain all the information we can about the retirement plans at issue before settlement negotiations even begin.
Different employers have different types of employee-benefit plans, all of which have their own rules. Therefore, no two QDROs are the same. Note that non-ERISA plans and retirement plans administered through the federal and local governments have different requirements altogether.
If possible, we submit a proposed QDRO to the company early in the divorce proceedings for pre-approval so that the document can be submitted when the final judgment is entered. Note that some companies won't review drafts – in that case the QDRO will be submitted as soon as possible after the final judgment.
Since a QDRO is not effective until approved by the plan administrator, if there is any delay in its implementation, the non-participant spouse may lose their benefits. We begin QDRO preparations as soon as we know that there will be a division of a retirement plan.
To protect your interests, it is imperative that you hire one of our family law attorneys who has experience with QDROs, is able to advocate for your interests, and assure that the documents are properly prepared and processed.