Are your QDRO Procedures Leaving you Exposed?
Are Your QDRO Procedures Outdated and Leaving you Exposed?
Three easy steps to reduce post-divorce liability and improve your QDRO process and division of retirement assets.
Nearly every divorce that involves retirement accounts will require a QDRO (Qualified Domestic Relations Order) to be prepared. Despite the fact that trends within divorce are moving toward the integration of more financial specialists and experts, faulty habits still persist among family law attorneys and mediators that relate to dividing retirement assets and QDRO preparation. Below, I provide three quick tips that can be used to help improve your process for splitting retirement assets and help reduce post-divorce exposure to liability arising from unintended financial mistakes.
Tip #1 - Re-evaluate your firm's QDRO professionals
The most prevalent and financially harmful practice is the outsourcing of QDRO preparation to an attorney or other financial professional who lacks the expertise required to properly prepare Domestic Relations Orders. To be fair, this practice likely began years ago, when it was necessary for someone to take on the unwanted burden and “hot-potato” task of QDRO preparation, and before there was a recognized body of expertise related to QDRO’s and dividing retirement assets. Today and fortunately, there are professionals with highly specific skills that can address this much-needed QDRO preparation service. Family Law professionals should re-qualify their short-list of QDRO preparers and be sure that those on the list are financial professionals who have expertise in ERISA Law as well as Federal and State laws governing retirement assets. Additionally, your QDRO professionals should hold the Certified QDRO Specialist™ or similar, relevant designation that demonstrates a minimum level of proficiency with QDRO preparation and the laws governing retirement asset-division.
Tip #2 -Don’t allow model (Sample) orders to be used as your final product
It is time for the family law arena to move away from the widespread belief that model (or sample) QDRO templates can be used as a “plug-and-go” solution to retirement account division. Very few attorneys or judges understand that model orders are merely templates that are created by the Plan Administrator to make the review process easier for the Plan Administrator. Very often, the language and terms within model orders are written with a strong bias toward the employees of the plan. This is particularly true with respect to the Massachusetts State Pension models. Model or sample orders are not created to be a robust template that can fit each and every divorce. It is very important to remember that a QDRO is NOT a NEUTRAL document. Using a template or relying on a professional who does the same, may create unnecessary liability and unintended mistakes with retirement asset division.
Tip #3 - Consult your QDRO Specialist DURING the agreement process
The order of operation for asset-division in divorce has been backward for many years. For most divorces, the separation agreement is written first with the QDRO professional incorporated by name to assist with any post-divorce QDRO needs - second. Under this approach, the QDRO professional must rely on (and hope) that the separation agreement language is specific enough to address the many provisions required for a properly drafted QDRO. In my experience, this is almost never the case.
Using less-than-clear agreement language creates the potentially harmful situation where the QDRO preparer is forced to either send the parties back to amend the language, or to make their own interpretations, which should never happen. The good news is that an experienced QDRO Specialist can provide a review of agreement language as well as added detail to be sure that all possible contingencies are covered before final agreements are signed. You can eliminate many financial mistakes by simply collaborating with your QDRO Specialist BEFORE finalizing the separation agreement.
Adam Waitkevich, CFP® is the Founder of Divorce Financial Solutions, LLC in Westborough, Massachusetts. He is a collaboratively trained, Certified QDRO Specialist™ and Certified Divorce Financial Analyst®. Adam provides divorce consulting services related to asset-division, pension valuation and the preparation of Domestic Relation Orders. He has been qualified as an expert witness and has testified on QDRO and financial matters. For a professional consultation on your next divorce, please set up a professional call with Adam HERE.