Divorce can be a complicated and messy affair, even in cases where the couple is determined to make a clean break of the matter. Since there are a host of variables to consider – child custody, home ownership, splitting bank accounts, to name just a few – things rarely go according to plan.
Often couples will neglect hiring seasoned divorce attorneys because they envisage a scenario where their lives are split evenly down the middle, thinking that it’s simply a matter of adding everything up and dividing by two. But this attitude can lead to a rude awakening once either party is forced to deal with the legal realities.
One area of divorce law that can blindside couples is the division of retirement funds, also known as Qualitative Domestic Relations Order (QDRO). It is also an area that receives little attention, despite the enormous complexity involved. To successfully split retirement funds, a lawyer must have an advanced understanding of the terminology and law that governs the QDRO.
Emily McBurney specializes in QDRO law and is a partner at the Atlanta based law firm Kegel McBurney LLC, and according to her, it is crucial for a couple to fully appreciate the difficulty and importance of successfully splitting retirement funds. Ms. Burney took the time to answer a few questions for us on the subject.
What is a Qualitative Domestic Relations Order?
When someone is in a retirement plan, like a 401k or pension program, there’s a whole bunch of federal laws collectively called ERISA, and those laws basically define all of the rules for what an employer can or can’t do with retirement money. A big rule is that they cannot give that money to anyone other than the employee. There are all sorts of laws attached to prevent someone [else] from getting that money. But early on, the courts realized that this is a problem, because when couples get divorced a lot of times retirement [money] is their biggest or only asset.
This is because a lot of times in a traditional family there’s a man who has worked for 30 years, saving away money each month for retirement, and now it’s all they’ve got. And when they decide to get divorced, there is suddenly all of this law that can create real inequities in the divorce.
In the early ’80s, Congress amended the law that allowed for the employer to pay out to a non-employee in very specific circumstances, such as domestic relation situations – a spouse, former spouse, child, or other dependent of the worker. The law sets up all of these specific conditions that can be followed. So the QDRO is really a creation of that section of the law that allows for someone else to be paid retirement money, so long as they meet these specific conditions.
How does QDRO affect same-sex couples?
Same-sex couples are not yet eligible. I think there are some retirement plans that recognize them and treat the couples the same as a married couple. There are a lot of unanswered questions as to whether the IRS will recognize it as a legitimate transfer. Under the current law, it has to be a legal spouse. It’s still an open question in states in which same-sex couples can get legally married. But under the federal tax code you still can’t.
What makes dividing retirement assets so different from dividing regular assets?
What makes this somewhat unusual is that while the law that governs retirement plans is federal law and tax law, the rules about how it’s divided in a divorce are entirely state laws. So each state has different laws about division of property and equitable division.