Drafting Agreements When Retirement Assets Are At Issue

by Ravelle Smith, JD of Cordell & Cordell, P.C.

Drafting settlement agreements when retirement assets are at stake can sometimes be an unnecessarily tricky endeavor that falls to an attorney near the conclusion of a domestic matter.  Therefore, particular care should be given to cases that involve the distribution of retirement assets from the outset of the case, not only at the time of settlement and drafting of an agreement.

 

One of the most important things that should be done in this process is to do your homework.  In furthering this task, it is a good idea to create a list to assist in the information gathering process so that the attorney can be sure to obtain before attempting to finalize a domestic matter.  One of the things you should do is to get the retirement statements as soon as possible.  From the retirement statement, you should be able to find out the exact name of the Plan.  An attorney should have a recent account statement and the precise name of each of the parties retirement plans so that it can be determined whether the Plan is qualified, and whether it is a defined contribution, defined benefit, or some other type of plan.  This information could help the advocate learn valuable information in the beginning stages of a case and avoid confusion later.

After you have determined what type of plans the parties have, you should determine which benefits are subject to division.  Many types of retirement benefits are simply not divisible, no matter what the court orders or how willing the parties are to divide the benefits.  State and local government plans, State Teachers Retirement Plan, Supplemental, SERP, Non-qualified, or Excess Benefit Plans are just some plans that typically cannot be divided.  A party needs to know this information at the beginning of his case, as compared to later when an agreement has already been reached as to the distribution of property.  If the parties have agreed to divide a non-divisible account, it is very likely they will either have to renegotiate the terms of their settlement, or litigate the matter before a judge to determine what is fair and equitable.

A list of employment related benefits should be procured directly from the employer.  Some individuals may intend to be forthright about disclosing this information, however some just forget about or don’t know the benefits their employer provides.  Additionally, vested benefits from a party’s prior employment can play a role when you’re drafting and negotiating a settlement agreement.  Not only may a party have their 401K benefits rolled over into a separate IRA account or some other plan, but that party may have also accumulated enough time on a previous job to earn a pension at retirement.  If that party worked on that job during the marriage, the pension would be a marital asset subject to distribution, and should be appropriately addressed during settlement discussions.

When determining what assets in a retirement plan would be a fair amount to divide, you need to be aware of the most current balance, as well as any loans that have been taken out against an account.  The statement should provide the balance as well as any outstanding loans or other withdrawals against the account.  Generally, loans are not able to be transferred.

When discussing settlement and drafting an agreement, it is imperative that you establish a date of division.  Parties may agree that the retirement assets are going to be divided equally, but as of what day.  Is it the date of the agreement, the date of divorce, or some other date the parties intend?  If there is a significant change in the value of a plan before it is divided and the date of determination is not specifically stated, one party would stand to gain a substantial advantage by taking the more beneficial date.  A cut off time is essential in ensuring that this type of problem is not encountered in a case, so it should be made sure that it is clear when the non-employee payee’s right to future benefit accruals stops.

If you are working with a defined contribution plan, you should consider whether the payee party’s award will be adjusted for any earnings or losses between the date of division and the date the money is actually distributed.

Just because you have done your due diligence in getting the settlement agreement drafted, approved by the Court, which issues a final judgment and decree, does not mean that the plan will take a matter of days to be divided thereafter.  QDRO’s may take some time to be completed, and the account balance my increase or decrease a great deal during this period.  You will want to define whether or not the payee’s portion of the retirement asset should be set as the date of division, or if gains or losses should be attributed with the rise and fall of market forces.  Especially in this day and age with the dramatic fluxes in the economy, you definitely want to ensure that this portion of your settlement is addressed and resolved.

All of the above suggestions will go a long way in getting your settlement agreement and QDRO drafted in an efficient manner.  Failure to adequately address any one of these issues could send your case into an unnecessary whirl wind that could end up costing a client dearly in the end.  Therefore, when you are dealing with retirement accounts, make sure all your “i’s” are dotted and “t’s” are crossed.

Ravelle Smith is an Associate Attorney and Litigation Manager in the Atlanta, Georgia office of Cordell & Cordell, P.C.

Read more about Mr. Smith.

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