Negotiating the division of retirement assets in divorce

Working out matters related to property division and other financial obligations in divorce cases requires careful negotiation and planning. Splitting up assets can be complicated in practice, and parties may need to be flexible in coming up with an acceptable agreement.

For instance, a couple may negotiate the division of retirement assets to satisfy family support or property division obligations. This can work well for some couples, but it is important to ensure retirement funds may be transferred without any issues.

Do not forget the QDRO

A qualified domestic relations order (QDRO) is a court order which allows a retirement plan participant to establish an alternate payee who may receive some or all of the participant’s retirement benefits. Under the Employee Retirement Income Security Act of 1774, assignment of a retirement plan’s interests is not ordinarily permitted, but there is an exception for cases where a qualified domestic relations order is used. Property division in divorce is a common context for the use of these orders.

A QDRO must meet certain requirements in order for a retirement plan administrator to honor it. First of all, a QDRO may only designate a spouse, former spouse, child or other dependent as an alternate payee under the retirement plan. The order itself must also contain specific information, including:

• Name and mailing address of the retirement plan participant and each alternate payee;
• Dollar amount or percentage to be paid to the alternate payee; and
• Number of payments to be made or the period of time over which the order is effective.

There are certain limitations as to what a QDRO may require of a plan administrator, and it is important to be aware of these when negotiating and setting up the order. Also, it is up to the administrator of the retirement plan to make an initial determination about the qualified status of a domestic relations order.

A QDRO may be part of a divorce decree or property settlement, but this is not required under the law. For couples who have retirement plans at issue in divorce, it is important to be aware of these requirements and each retirement plan administrator’s process.

Working with experienced legal counsel can help to ensure your interests are protected when negotiating retirement plan interests. It is often necessary to ensure everything is done correctly when finalizing the QDRO.