Qualified Domestic Relations Orders (QDROs) are critical legal tools in the division of retirement benefits during a divorce. A well-drafted QDRO ensures that both parties receive their fair share of retirement assets, protecting their financial future. However, mistakes in drafting a QDRO can lead to significant delays, unexpected tax consequences, or even loss of benefits. At Leeson & Leeson, our Bethlehem QDRO Lawyers understand these common errors and how to avoid them.
Failing to Identify the Correct Retirement Plan
One of the most basic yet frequent mistakes in drafting a QDRO is failing to correctly identify the retirement plan in question. Many companies offer multiple retirement plans, such as 401(k)s, pensions, and profit-sharing plans. If the QDRO does not accurately specify which plan is being divided, the plan administrator may reject the order, leading to delays and additional legal costs.
To avoid this mistake, it is crucial to obtain and review the Summary Plan Description (SPD) from the plan administrator. The SPD provides essential details about the retirement plan and can help ensure that the QDRO accurately identifies the correct plan and its terms.
Misunderstanding the Plan’s Distribution Rules
Each retirement plan has its own rules regarding distributions, and a QDRO must comply with these rules to be accepted. Common mistakes include requesting a type of distribution not allowed by the plan or failing to account for the plan’s requirements for timing and method of payment. For example, some plans may not allow for immediate lump-sum distributions or may have specific age-related restrictions.
To avoid these issues, it is essential to work closely with the plan administrator when drafting the QDRO. Understanding the plan’s distribution rules and ensuring that the QDRO aligns with them can prevent the order from being rejected and avoid unnecessary complications.
Inadequately Describing the Division of Benefits
A QDRO must clearly describe how the retirement benefits are to be divided between the parties. Vague or ambiguous language can lead to disputes and delays. For instance, stating that the non-employee spouse is entitled to “half of the retirement benefits” without specifying whether this refers to the account balance at the time of divorce or at the time of distribution can create confusion.
To prevent such issues, it is crucial to use precise language in the QDRO. Specify whether the division is based on the account balance at the time of divorce, the time of separation, or some other specific date. Clearly state the percentage or dollar amount that each party is entitled to, and consider including instructions for how gains and losses should be handled between the division date and the distribution date.
Overlooking Survivor Benefits
Survivor benefits are another area where mistakes frequently occur. If the QDRO does not address survivor benefits, the non-employee spouse may lose these benefits if the employee spouse dies before retirement or before the benefits are fully distributed.
To avoid this, ensure that the QDRO explicitly addresses survivor benefits, specifying that the non-employee spouse is to be treated as the surviving spouse for the purpose of receiving survivor benefits. This can help secure the non-employee spouse’s financial future in the event of the employee spouse’s death.
Seek Legal Expertise Today
In Pennsylvania, working with an experienced family law attorney who understands the intricacies of QDROs is essential. At Leeson & Leeson our Bethlehem, Pennsylvania, QDRO lawyers have the expertise to help you navigate the QDRO process, ensuring that your retirement benefits are divided fairly and in accordance with the law. If you need assistance with drafting a QDRO or have questions about the process, contact us today for a consultation.