Finalizing a client’s divorce can sometimes be an insurmountable feat, but don’t rest easy just yet… Protect your malpractice exposure and make sure you submit the QDROs before you close the file. Suppose there are 50 million people in the United States that are currently covered by employer-provided retirement plans. Now add in the divorce rate of close to 50%. This illustrates just how dependent clients are on their attorneys to make sure we “get it right” when it comes to the division of retirement assets.

They may have all defined benefit plan, a defined contribution plan or an ERISA plan or a combination. However the many plans or how the retirement benefits are held, in the event of a divorce, these benefits often must be divided. As a matrimonial attorney practicing in New York, often I encounter a couple separating a few assets that often include retirement benefits and real property. Therefore, early on, we as practitioners become familiar with the term “QDRO”- but what does this all really mean and why is it so important that the lawyers get this right? Well, state law dictates how assets are divided in the event of divorce. In New York, for example, we have the Domestic Relations Law and case law that further defines and dictates how assets are to be divided.

But retirement benefits are special, because any assignments or distributions pursuant to a divorce must comply also with the Federal Law, entitled the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986. And because Federal law applies, we cannot divide retirement benefits without a Qualified Domestic Relations Order, or “QDRO.” Attorneys are remiss if they don’t at least familiarize themselves with the basics of these facts, as tax implications are far too dangerous to ignore.

So, now we know that retirement benefits can be divided by a QDRO. They can be paid to a spouse, former spouse, dependent or child -and that person is then known as an “alternate payee” A divorce agreement, when drafted properly, provides all the information needed for the QDRO preparer to draft a QDRO that effectively assigns the right to receive a portion or all of the retirement asset. When drafted properly, this protects the “alternate payee” and also the “participant” as during settlement negotiations many of the terms and conditions are negotiated. This may include a myriad of conditions,
which could include a provision to account for asset valuation dates, loans taken against the plan, pre- retirement and post-retirement death beneficiaries, pop-up options and pre-retirement contributions. As the attorney for the “alternate payee” you must be mindful when drafting the settlement agreement that you are in fact, creating their right to receive a portion of this asset and including language to preserve that right. For example, if you fail to include language about the participant’s obligation to elect joint and survivor benefits upon retirement and they don’t, you may be precluded from re- negotiating this when it comes time to draft the QDRO. Your client is vulnerable to losing the asset in the event the participant predeceases them.

Another point worth reminding attorneys is that while we are often so relieved when a case finally settles or reaches decision after trial that we forget to submit the QDROs timely. Our retainers often provide for a separate retainer to prepare same, but a delay in the preparation and submission of the QDRO can prove to be financially disastrous for some clients. Typically, a participant will go into pay status before the alternate payee recognizes that they should be receiving the pension money. The process alone can take a few months from drafting to plan approval and submission, which could mean your client losing out on pension monies while the QDRO is being processed. Surely, you can make a motion to recoup arrears, but at what cost to your client and YOUR reputation? The simplest solution for practitioners is to submit QDROs along with the proposed Judgment, Findings and supporting documents or not more than 60 (sixty) days after inquest. This is clearly the best practice for the practitioner and the best protection for a client who may be relying on the pension as their security. They shouldn’t have to miss out on one payment and the cost of hiring an experienced matrimonial attorney and QDRO preparer will be well spent in order to preserve what could be a very valuable asset.