Why does the plan administrator keeps rejecting the QDRO when my client was awarded 50% of the marital portion of her ex-husband’s 401(k)?
QDRO expert Tim Voit answers:
This is because very few, if any, 401k administrators will compute contributions and earnings between two points in time (e.g. date of marriage to date of divorce). Unfortunately, there is not a magic key on the computer for the plan administrator to press and compute marital values of 401(k)s or Thrift Savings Plans.
Plans change record keepers, and companies change plan administrators; therefore, in long-term marriages it is difficult to get any cooperation from the plan. All too often we see settlement agreements stating that one spouse is awarded 50% of the marital portion of the other spouse’s 401k. The divorce is over and the spouse is left with trying to find someone or some way to compute the marital portion, or worse, getting the plan administrator to accept some form of QDRO, to no avail.
using all of the quarterly account statements if possible
The calculations would have to be done independently using all of the quarterly account statements if possible, where contributions and earnings are tracked with a proportionate share of the earnings being assigned to either the marital or premarital estate. It can be a long and time-consuming calculation, especially if there are loans involved. To be accurate, a thorough analysis is the best approach, and often beneficial to the plan participant since the premarital portion is often more valuable than most people would otherwise think, but it costs money to have it done.
The other option is to subtract the date of marriage account balance from the current account balance, but this assumes no growth in the premarital portion. Regardless, the date of marriage account balance must be known and provided. Also, loans should be addressed, which is another interesting issue since if loans are taken from the 401(k) or TSP early on in the marriage, the marital portion is actually in the red (as it borrowed from the premarital estate). Coverture fractions do not work since the contributions and earnings have nothing to do with years of marriage or years of service, so avoid this if at all possible.
Rather than having the non-401(k) spouse hassle with trying to get a QDRO awarding 50% of the “marital” portion, place the burden on the plan participant spouse to have the premarital portion calculated and excluded. If they do not, perhaps by a certain date, deem it all marital. Sometimes you have to light a fire otherwise the plan participant spouse has no incentive to cooperate. After all, isn’t the goal of awarding half of the marital portion to exclude the premarital portion? So please dont’t just put in a settlement agreement or final judgment that the one spouse is awarded 50% of the marital portion without specifying who is to do the calculations or how it is to be done.
Lastly, if there are loans on the 401(k) existing, emphasize just how much of the loan(s) the spouse is responsible for and whether their awarded share is to be adjusted or reduced. This point is often missed.
Tim Voit is the author of Retirement Benefits & QDROs in Divorce, a CCH publication, and Federal Retirement Plans in Divorce – Strategies and Issues, available through www.vecon.com. Mr. Voit’s firm provides retirement plan valuations and specializes in the preparation of QDROs. Mr. Voit has been admitted as expert in the courts of several states as well as in federal court and is a nationally recognized expert.
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