Know Your Retirement Plans

by Ravelle Smith, JD of Cordell & Cordell, PC

Often people aren’t sure if they have a cash balance plan, a defined benefit plan, a defined contribution plan, or any of the other several retirement vehicles that exist.

In many cases, especially where there are lengthy negotiations over other issues, it is easy to get a little slipshod when it comes to the distribution of the parties’ retirement assets.  For example, one party may propose to “divide the assets in half” and the other party agrees, and something to that effect gets drafted into a settlement agreement.  However , retirement benefits can be a little more involved than some of the other issues in a dissolution of marriage. 

 

If the parties only own one piece of real property that they utilize as their marital residence, and they describe it vaguely or without the legal property description in a Settlement Agreement, this rarely poses a problem.  The parties know exactly where the marital residence is located, and their intent is usually pretty clear.  For instance, should the Agreement state that the Husband shall possess, own, and retain the marital residence, there is very little risk that this will become the subject of dispute.  Or, should the Agreement state that the Wife shall keep and own the car she is currently driving, this usually doesn’t present a problem after the Agreement has been entered.  However, if in distributing the assets to a retirement plan, the parties only say the “the retirement assets will be split in half”, this can create an array of issues in not only drafting a settlement agreement, but also in the actual distribution of funds from the intended retirement plans.  

Retirement plans can present a different problem in that parties often are not aware of the types of plans they actually have.  They aren’t sure if they have a cash balance plan, a defined benefit plan, a defined contribution plan, or any of the other several retirement vehicles that exist.  The distinctions between these plans make a tremendous difference in terms of what can actually be transferred in connection with a divorce and, if their plans can actually be divided through an order pursuant to the divorce decree.  For instance, if the parties intend for assets to be distributed from one plan to the payee spouse, but the plan is a typical government or church plan, the benefits are not divisible, no matter what a court may order.  

It is important that the attorney understand the basics of retirement plans so that they can effectively advise the client throughout the divorce proceedings.  To that end, at the outset of a case, a client should immediately get their attorney their most recent retirement plan statement so that the attorney can decipher the type of plans involved in the case. 

Upon inspection, you will find that most plans come under the federal statute called the Employee Retirement Income Security Act (ERISA).  This Act requires plan administrators to follow the State Court orders if that court issues an order in a domestic relations matter relating to child support, alimony, or property division, and a party is awarded an interest in a qualified retirement plan (a plan that meets the requirements set forth in ERISA).  If a QDRO is properly ordered by the Court and conforms to the rules of the plan, then the plan is required to provide benefits awarded directly to the non-employee spouse or other dependent.  However, if a plan does not fall under the confines of ERISA, it will not be allowed to be divided by QDRO.  A party should and must know this information prior to entering into settlement of a case.  If the parties to an action agree to have retirement benefits divided by QDRO, and that is impossible, a new can of worms can be opened that could cost both litigants a significant amount of money in the end.  

In conclusion, both the attorney and the client should complete their due diligence in the beginning of a case.  The attorney should request all pertinent retirement documents from the client.  And the client must, no matter how time consuming, comply and provide their counsel with all the information needed to effectively manage his case.  By providing retirement statements at the beginning of the case, as compared to after an agreement has already been reached and entered into, the advocate can ascertain by what methods the division of this martial asset can be performed.  If retirement plans cannot be divided easily or by QDRO, this must be recognized and planned for accordingly.  Following these basic steps can prevent unnecessary hassle, delay, and excess litigation when distributing the marital property in your domestic matter.  

***PLANS GENERALLY NOT DIVISIBLE BY QDRO***
State and local government plans
State Teachers Retirement Plan
Supplemental, SERP, Non-qualified, or Excess Benefit Plans
Stock Options
 
 
 

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

Read more about Mr. Smith.

End of Content Icon

Leave a Reply

Your email address will not be published.