In many divorces, the largest asset is the couple’s retirement, although many couples do not think about that because their retirement is still a way off. It could come from a private sector plan including a 401(k) or a profit sharing plan, a plan for public school employees such as a 403(b) or Teacher Retirement System of Texas (TRS), a statewide governmental plan like the Texas Municipal Retirement System (TMRS), a plan for federal government employees including the Thrift Savings Plan (TSP), military retirement or there are even some pensions still hanging around. Often a couple will have multiple benefits in different types of plans.
In addition to language splitting the retirement benefits in the actual divorce decree, most plans require a separate order to effectuate the division. This separate order is most commonly called a Qualified Domestic Relations Order (often referred to as a QDRO, pronounced “KWADRO”), although depending on what type of employment the employee/retiree is or was previously engaged in, the order can have different names. Many retirement plans are governed by a federal law called commonly referred to as ERISA, the Employee Retirement Income Security Act of 1974. The Department of Labor website states that, “ERISA is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.”
Because retirement plans are such an important asset of the marriage, it is important to have someone who is specially trained and experienced in retirement benefits to prepare the language for the decree and QDRO for those plans. Why is it important to have an expert in retirement plans to prepare the QDRO? Many plans are voluminous. Even to experts in employee benefits who specialize in retirement plan work, the plan can be complicated to understand. As a family lawyer, I regularly ask for my client’s permission to bring a QDRO expert into the case to prepare the decree language and the QDRO because I believe that is in the best interest of my clients.
Some companies (and even some lawyers) say, “Oh, the company just provides a ‘form QDRO.’” So, you are probably wondering, why can we not just use that? Here is why: There are often many choices or what are called “elections” in plans. I am told, even by people who have previously worked in benefits offices, that those elections and other choices made while dividing the benefit can be critically important and some model QDROs even favor the employee over the non-employee spouse. There are questions, such as Survivor Annuity elections, which determine if and when a benefit will continue for the ex-spouse after the employee/retiree has died.
Particularly in Collaborative Divorces, it is my belief that having a qualified expert to prepare the QDRO itself and the language that tracks it in the divorce decree (so that there is no conflict between the two documents) serves the clients and is well worth the cost. It is much more efficient for the retirement specialist to sit down with the clients and their attorneys in one joint meeting and discuss the elections and details pertinent to the parties’ retirement plans.
Tracy Stewart, a long-time CPA who serves as the financial professional in Collaborative Divorces, recently published an excellent article on the Collaborative Divorce Texas website, called, “Splitting Retirement Assets – Don’t Try This at Home!” She gives a great explanation of the gravity and complexity of this issue. As a family lawyer who is Board Certified by the Texas Board of Legal Specialization, I can tell you that even most board certified lawyers are not experts in retirement benefits; I recommend that when you need a specialist, you should be sure to ask for one. For additional information, here is an article that was published by the Dallas Bar Association by Raechel Parolisi, the person I consider to be one of the pre-eminent QDRO attorneys (ERISA attorney) in this area. Her very clear explanation of the considerations that every client and family lawyer should have is set out in “The Dangers of Not Using an ERISA attorney.”