Can you give some examples of the complications that might arise?
Here’s a favorite example. I dealt with a case where a couple got divorced and there were a lot of different kinds of retirement money. It was clear nobody understood the different kinds of money, and the rules aren’t evident if you don’t know what you’re doing. The wife was supposed to get 50% of the 401k and her lawyer drafted the QDRO, and it looked like it would be easy – she'd fill out the QDRO so it was clear she gets half and it will be no problem. So for instance, if there was $500k in the 401k, she thought she’d be getting $250k. But the lawyer wrote in "50% of the marital portion." It seems like a meaningless phrase but it made all of the difference. Then she got a check for $80k dollars. She went ballistic and thought the husband did something wrong.
It turns out that every word in a QDRO means something and in this case, “marital portion” means [the] portion accumulated during the marriage. They had a short marriage but a long courtship and most accumulation was before that. So when calculating her sum, they went back to a date [only] a couple years beforehand, when they got married. And something like this is a big problem. It requires litigation to fix. It wasn’t that she got screwed; it was because she did the wrong thing.
What other consequences might arise from doing a QDRO improperly?
In a best case scenario, everyone understands the problem right away and can start to work to fix it. The big gut-clincher is that most of the time nobody knows a mistake has been made. A lot of the mistakes that get made are made with [matters like] surviving spouse benefits. You forget about it and someone dies or retires and gets the wrong amount and too much or too little and it’s 20 years later and too late. So one of the reasons it’s important to have a lawyer is you might be making a terrible mistake and not know it until it’s too late to fix. Even in situations where people are saying "We’re just doing 50/50," they have to understand that the devil is in the details.
Article comments
1 - John E.
Great insights about the 401K, most people forget they need to take that into consideration before filing for a divorce, no matter what state they reside in.