Dividing Retirement Accounts After a Divorce

Oct 11, 2016 | Written by: Diana N. Fredericks, Esq. | Share

Recently, I met several new clients who were each divorced more than twenty-five years, and whose divorce agreements called for the division of retirement accounts…divisions that never occurred.  No one followed up until they reached retirement age and realized their accounts had yet to be divided.  

Unfortunately, a significant amount of my post-judgment practice involves the division of retirement accounts or QDROs (Qualified Domestic Relations Order) that were never prepared or followed through to completion in a timely manner.  Why?  At the conclusion of a divorce, some people may simply not want to further engage their former spouse, may not want to continue paying their attorney, or may believe they have ample time to put it off.  While all of these rationales are understandable, it is critical that QDROs are prepared and retirement accounts divided as soon as possible upon the entry of a Final Judgment of Divorce and/or as called for under a divorce agreement. 

When you wait to effectuate, draft and transfer retirement accounts, circumstances can change, files can be destroyed, attorneys can become unavailable, the Plan that the spouse belongs to can be modified, and so on.  Your former spouse may even start collecting retirement benefits, including your share.  Therefore, when a client comes to me decades later to divide a retirement account, what may have been a relatively simple and inexpensive task at the time of judgment now becomes complicated and laborious.  That does not mean it is impossible; just more difficult than perhaps it would have been at the first instance. 

Some clients have a misconception that they have to wait until they or their former spouse are of retirement age or eligible under the terms of their Plan, but that is typically incorrect.  Instead, a QDRO should be immediately prepared to divide pensions, 401ks, etc. (not always required for IRA’s).  This QDRO is typically prepared by a third-party actuary for a fee, which sets for the legal order by which the retirement account is to be divided, even if it is prospectively.  This can be critically important. 

If the account is a pension, the QDRO, which is signed by the Court and approved by the Plan (employer), will segregate the alternate payee (non-employee’s) share such that when payments are due, you will receive your share directly from the Plan and not from your former spouse.   Moreover, because the interests are segregated (again, depending on the plan), your interests may be protected in the event your former spouse predeceases you or modifies his/her interest.  If the retirement account is a 401k, your share can be transferred to an account of your designation, such as an IRA, where you control same. 

Chances are you made great efforts to address and include your retirement accounts and equitable distribution thereof as part of your final divorce decree.  Therefore, you should take equal care to ensure that you have completed the necessary steps to finalize the division of those accounts post-divorce.  QDROs and the division of retirement accounts (and other issues under your agreement) are often tedious and complicated, but they are also significantly important to your financial future.  The follow-up on these tasks post-divorce is critical.  After your divorce concludes, reread your final agreement.  Make sure you create a “to-do” list of anything/everything that requires follow-up or to which you are unsure of what follow-up is needed.  Be diligent and assertive in making sure the QDROs are properly completed and approved by the Plan. 

Similarly, if your former spouse has waived any claims to your retirement assets under the terms of your Property Settlement Agreement, it is critical that you change your beneficiary designations immediately.  A United States Supreme Court case has held that the waiver itself, without the change of beneficiary designations, is not sufficient to eliminate potential claims against these assets by your former spouse.