Retirement benefits are often the largest financial asset in divorce, so family lawyers must properly investigate any retirement plans involved in the case.
By Tim Voit, Financial Analyst
Retirement Benefits and QDRO Issues: The Importance of Discovery
In order to better serve their clients in cases of divorce and the division of retirement plans, attorneys should pursue each and every type of retirement plan accrued during the marriage.
The importance of discovery in both the valuation of retirement plan benefits and QDRO-related issues cannot be overemphasized. Drafting a marital settlement agreement or equitable distribution agreement that simply states that the petitioner/plaintiff is awarded 50% of the respondent’s/defendant’s retirement benefits, or vice versa, will lead to future complications. In fact, many of the problems in malpractice cases could be avoided if the retirement plans had been properly identified and defined in the first place.
In long-term marriages, 401(k)s can be rolled over, transferred, or liquidated. However, this is not true of pension plans, which remain with the company until retirement. Like 401(k)s, defined contribution plans have account statements that are mailed regularly to the home or are easily accessible online; pension benefit statements, on the other hand, generally are neither mailed nor easily available online. Therefore, the other spouse may or may not know if benefits are accruing in a pension plan.
Retirement Benefits: The Necessity of Due Diligence
More often than not, a spouse will want to minimize his/her assets in a divorce, so due diligence is required on your part. You should never blindly accept what the spouse who holds the majority of the retirement accounts says he/she has in terms of retirement benefits, or what he/she puts on a financial affidavit.
For discovery purposes, if an individual has worked for a company for many years, a diligent practitioner must ask if any terminated or frozen plans exist. Although a retirement plan may be terminated, it still has to be administered and eventually paid out. If a frozen or terminated plan goes undiscovered, the alternate payees lose out on benefits accrued during the marriage, which will then become your problem as well.
An example of a case where a pension plan went unnoticed involves a company that terminated one plan in the mid-’90s and created a new defined benefit plan as part of a merger. The second pension plan was the only one mentioned or referenced in the parties’ settlement agreement. Upon reviewing the documents after the divorce, it was brought to their attention and discovered that the wife was entitled to approximately $50,000 more in benefits.
Obtaining Information From the Plan Administrator
One solution is to send each employer a questionnaire/authorization upon the onset of the divorce process. This allows enough time for the plan administrator to respond before the settlement is finalized. In long-term marriages, you may want to forward a copy to the employers during the marriage. Make your list of questions concise to ensure the plan administrator will take the time to answer them; otherwise, the administrator may place it at the bottom of his or her stack of inquiries.
You should also ask the administrator or employer to provide the exact start date of the participant’s employment, and the date he/she began participating in each of the plans. Participation in a defined contribution plan – e.g., 401(k) or similar plan – doesn’t always coincide with the date of employment, and this information may be necessary when examining pre-marital versus marital benefit accruals.
If the spouse with the majority of the retirement benefits is unwilling to sign the authorization, the information will have to be subpoenaed with the questionnaire portion attached.
Cases of Multiple Benefit Plans
Practitioners may also encounter participants in multiple pension plans. If the divorce involves a union employee, benefits may have accrued under two or three different pension plans: one funded through employer contributions, one funded through union dues, and possibly a national pension plan. The practitioner must ask if the participant is involved in one or more plans associated with his or her union or job classification, past or present.
Tim Voit is a nationally recognized expert in QDROs and pension valuations, a financial analyst, and founder of Voit Econometrics Group Inc. He is the author of Retirement Benefits & QDROs in Divorce (CCH, 2004) and Federal Retirement Plans in Divorce – Strategies and Issues (Voit Econometrics Group, 2011). A sample questionnaire/authorization is available by visiting: www.vecon.com/downloads.
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