The Importance of Timing in the QDRO Process
By Matthew Lundy, Esquire QDRO Attorney
Most parties in family law cases have never heard of a QDRO before. Unless parties are instructed as to what a QDRO is and why they need to get one done, they may assume that the process of splitting a retirement account is complete upon the entry of a final judgment. Further, it is common practice for family law attorneys to instruct clients to begin the QDRO process after the entry of a final judgment. Although this practice is common, it is generally not favorable to either party.
Why? If the Plan is not placed on notice of the non-participant's interest in the plan (by receiving a draft QDRO of a copy of the final judgment or both), the non-participant bears the risk of loss if the participant takes out a loan against the Plan, withdraws all of the money, declares retirement, or dies. For the non-participant spouse, once a final judgment is entered, the participant spouse could elect to retire prior to a QDRO being done, which could eliminate the possibility of obtaining survivor benefits. Additionally, the participant could take withdrawals that could affect the account balance. Worse yet, the participant could die, and then the participant's entire account could disappear or transfer to the participant's estate. See Samaroo v. Samaroo, 193 F. 3d 185, 186 (3rd Cir. 1999)(holding that a nunc pro tunc amended DRO obtained after plan participant's preretirement death was not a QDRO under ERISA, because the order essentially increased the plan's liability by conferring survivor benefits on a former spouse after her right to those plan benefits had lapsed on the plan participant's death). For the participant spouse, when a QDRO is not timely prepared, it limits the ability of the participant to freely manage the participant's account without potential for enforcement/contempt proceedings, and may also impede the participant's ability to retire.
A settlement agreement addressing retirement accounts should not only address the amount to be transferred to the non-participant spouse, but it should also address the process for dividing the account(s) in question. This should include how the cost of obtaining QDROs will be paid, and which party bears responsibility for obtaining any such QDROs. Further, the parties should be advised in writing of the potential problems with having QDROs entered after a final judgment, so that they cannot blame their attorneys for any problems arising from rushing to obtain a final judgment. Addressing all issues related to retirement account division in family law cases is critical to streamlining the QDRO process and avoiding client dissatisfaction. For more information contact Pates Law Group or visit www.MLundyLaw.com