Going through a divorce can be physically, mentally, emotionally, and financially draining. The end of a divorce case can not only bring a sense of relief, but also can be grounds for celebration. It can also be overwhelming when you find out that there may be more work to do. In many cases, parties to a divorce don't realize that they may have skipped a few critical steps to finalize the division of retirement accounts during the divorce. When they find out that they aren't quite finished, and need a “thing called a QDRO”, people frequently put the division of their retirement accounts on the back-burner. “QDRO” is short for “Qualified Domestic Relations Order” and is a type of court order that is required to complete the division of most retirement accounts either during or after a divorce proceeding.

One of the most common things we hear is “my attorney mentioned something about a QDRO a while back, but I figured I'd get around to it later,” or, “my attorney didn't handle QDROs and I decided to wait until we were closer to retirement to get it done”. As a result, we have seen where “later” means 5 years, 10 years, 20 years, or more! Unfortunately, “getting around to it later” has the potential to be financially devastating.

There are several situations where the retirement benefits awarded to you could be significantly (and sometimes irreversibly) impacted:

A) Liquidation.

If you wait to complete the processing of your QDRO, and your ex cashes out the retirement account, you may have very limited options to recover your funds. Generally, this means you have to go back to court to try to collect what is owed to you. But, if the money is gone, it can be very difficult, time consuming, and extremely expensive. Even then, you may not be able to recover all (or possibly any) of the funds you were entitled to in the divorce.

B) Change of Plan Recordkeeper.

Assume that you were divorced in 2010 at the age of 30 and were awarded 50% of your former spouse's 401(k) plan, subject to market gains and losses. You never had your QDRO completed, but you're working on it now, thinking, “I've got plenty of time. My former spouse doesn't retire for at least another 20 years.” Then assume that your former spouse's employer changed plan recordkeepers for the company sponsored 401(k) from Fidelity to Vanguard in 2018. You might be wondering, “Why would it be such a big deal if my ex's employer switched from Fidelity to Vanguard for managing his 401(k)?” The problem is that when the plan recordkeeper changed, the new recordkeeper is generally unable to calculate gains and losses prior to the date that they took over recordkeeping duties. So, even if your portion of the account grew substantially¹ from 2010 until now, the Plan Administrator will very likely reject your current QDRO in this scenario. Typically, this requires the parties to either go back to the negotiating table or sometimes back to court to get sorted out. You may even need to hire a forensic accountant to calculate those gains and losses for you. Each of these avenues can be time consuming and expensive.

C) Loss of Benefits.

“Wait?! How can I lose benefits?” If you are awarded a portion of a pension plan, and you wait to submit a QDRO until after the Participant begins receiving benefits, you are generally “locked-in” to the form of benefit selected by your ex at the time of retirement. In addition, in most cases once the Participant has begun receiving benefits under a pension plan, the beneficiary designations for the accounts are irrevocable. This means that once the Participant has selected the person (or persons) to receive any death benefits from the pension after he or she dies, that selection cannot be changed – even with a court order. So, if you wait to submit your QDRO, you may not only lose the opportunity to determine how your portion of the benefit is paid, you may also end up losing your right to pension survivor benefits if your ex passes away.

D) Death of a Party.

If the Participant dies prior to a QDRO being entered and processed, you may very well be subject to whatever death benefits the Participant selected prior to death. If you were supposed to receive a portion of the retirement benefits and your ex did not name you as a beneficiary before he or she died, you may lose your rights to any of the retirement benefits. In some instances, it is possible to have an “After-Death QDRO” entered to secure your benefits, but the process for an “After-Death QDRO” can be significantly more complicated and expensive. Even then, you may lose significant rights, especially if they weren't clearly defined in your divorce decree. If the Alternate Payee dies prior to a QDRO being entered and processed, it can prevent their heirs from receiving any portion of the retirement account(s) that were supposed to be transferred during the divorce.

E) Statutes of Limitations/Laches/Dormancy.

Depending upon the state in which you reside, if you wait too long to have your QDRO prepared and processed, you may be subject to a Statute of Limitations, or certain types of defenses such as laches or dormancy. In simplest terms, these are various ways that the law says: “You waited too long to assert your rights.” The result is that you may lose your right the awarded benefits entirely. These rules – if they apply to your situation – can vary greatly state-to-state.

Although the process can be frustrating, it is critical to have your QDRO prepared and processed in a timely fashion in order to preserve your rights. One method of protecting yourself is to simply start the process by sending a proposed QDRO to the Plan Administrator. In most cases, upon receipt of a proposed QDRO, the Plan Administrator will place an “administrative freeze” on the account for up to 180 days. The “freeze” will generally prevent the Participant from cashing out any funds, processing any loans, or changing investment options until either the QDRO is processed and in place, or up to 180 days (depending on the Plan), whichever occurs first.

At SimpleQDRO, we strive to empower our customers to secure their rights by drafting the QDRO quickly and correctly for an extremely low price and by providing unmatched customer support. We can help provide you with peace of mind by preparing your QDRO(s) and guiding you through the process of having it implemented.

Whether you choose to use SimpleQDRO, or another option, don't fall victim to procrastination and frustration – the risk of waiting is far too high.

1. By way of example, on Jan. 4, 2010, the DJIA closed at $10,618.19; on Jan. 6, 2020, the DOW 30 (f/k/a DJIA) closed at $28,823.77 – a 271.45% increase!