When you hire a divorce lawyer, there are so many things you need to worry about. Of course, you want to make sure he or she has a good reputation and didn’t just start handling divorce cases the day you called for an appointment. You also want to make sure that you are comfortable with him or her and that the two of you have the same view of your case. You are going to be spending a lot of time with this person, and some of the most important issues in your life will be in his or her hands.
One of the things that can be most vital in a divorce case is one that most people don’t even consider when hiring a lawyer — dividing up retirement assets. Most people would be surprised to learn how little many divorce lawyers — even great divorce lawyers — know about how to properly divide these assets for their clients.
In my work, I am often brought in to cases after a major mistake has been made. Sometimes, they are aware of the problem when they hire me; other times, no one even realizes that an error has been made until I start to poke around. To divide most standard retirement plans, you need something called a Qualified Domestic Relations Order (“QDRO” for short). A QDRO is a specialized court order that allows a retirement plan to pay benefits to someone other than the employee. They are most often used in divorce cases to divide up retirement benefits earned during the marriage.
I’ve written before about the many ways that QDROs can be messed up ( See here and here ) Many of the errors that I see come simply from people not realizing what they are dealing with. The most common mistake is when the lawyers negotiate for the division of a retirement plan that cannot be divided. Almost all divorce lawyers know that retirement benefits can be divided by QDRO in a divorce. The problem is that some retirement benefits are not divisible — the employer will only ever pay those benefits to their employee, no matter what any court orders them to do.
While most American retirement plans are “qualified” retirement plans that can be divided in a divorce, there are two main categories of non-divisible plans. First, state and local government retirement plans cannot be divided under the laws in several states. In those states, the government plan will only pay benefits to an employee, not a spouse or former spouse. Second, there are a lot of benefit plans that are “non-qualified” plans, most of which are also non-divisible. Non-qualified retirement plans usually have words in their names like “Deferred Compensation,” “SERP,” “Excess Benefit,” and “Supplemental,” and there are boring, technical reasons why they are not divisible. Suffice to say, there are a lot of retirement plans that can’t be divided in the way most divorce lawyers think they can be split up during a divorce.
I’ve seen parties pay thousands of dollars, after their divorce is final, trying to sort out how to transfer a portion of the retirement benefits from one spouse to the other. I just finished working on a case in which the parties were completely cooperative about figuring out a way for the wife to get a portion of the husband’s county government pension. The problem was that they made their divorce agreement on the mistaken assumption that the retirement plan would make payments directly to the wife after the divorce. This turned out not to be possible, and even though both parties wanted to do the right thing, it cost them thousands in attorney fees to work out an alternative solution. This would not have happened if the divorce lawyers had realized that the husband’s employer could never pay benefits to the wife after the divorce. The mess would have been much worse if this had been a high-conflict divorce.
In the intersection of employee benefits and divorce cases, there are innumerable other ways things can get screwed up without anyone even realizing it until too late. Many of these problems cannot be fixed once the error has been made.
So what can you do to protect yourself? Whether you are the employee whose benefits are to be divided, or the one who is supposed to receive the benefits, you need to make sure that your attorney knows how this all works. When interviewing potential divorce lawyers, ask how much experience the attorney has in dividing retirement plans. If you know that you or your spouse has government or other non-qualified benefits, ask whether the attorney has ever handled this type of asset.
Also, make sure you give your lawyer all the information you have about the retirement plans. If you are not the employee, insist on obtaining this information from your spouse’s employer through the discovery process. A lot of problems could be avoided if everyone took the time to get this information up front. Often, everyone assumes that the employee has a traditional retirement plan, and no one bothers to confirm this until after the divorce, when it is far more complicated and expensive to fix. If your lawyer is not thorough when it comes to getting this information, you may need to push harder. If the lawyer is not up to the task, you may want to request that the attorney bring in another attorney with expertise to assist with retirement issues. Many excellent divorce lawyers prefer to have someone else help with this aspect of the case, much like they might hire an expert to advise them in negotiating the financial aspects of the divorce.
The most important thing you can do to protect yourself from a retirement disaster is to be proactive. Don’t assume that your lawyer knows how this all works; this assumption could be a costly mistake.