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Top Five Retirement Plan Division Mistakes Made in Divorce
After marital real estate such as a marital residence, retirement plans are generally the largest asset married couples seek to divide upon divorce. Similar to real estate, there are several complex legal and financial issues that must be addressed when dividing retirement plans upon divorce. With that being said, inexperienced attorneys and individuals representing themselves in divorce matters often make mistakes when dividing these vital assets. Below are the most common mistakes made when dividing retirement plans upon divorce. To ensure that your divorce matter is not plagued with these mistakes, be sure to engage an Atlanta divorce attorney who is qualified and experienced in retirement asset division.
1. Not Knowing the Type of Plan to be Divided.
Is it a defined benefit plan, such as a pension, a defined contribution plan, such as a 401(k), or a cash balance plan, which is in essence a hybrid plan? Not knowing this vital piece of information could be potentially devastating in a divorce matter because some plans must be divided with a QDRO or other court order, while others do not require such an order. On the other hand, there are some retirement plans that are simply not subject to division upon divorce.
2. Not Establishing a Clear Date of Division.
This is the one way to ensure post-divorce litigation. Is the retirement plan to be divided as of the date of separation or as of another date? This may not seem particularly important at first blush, but what if the retirement account grows in value after the date of separation? In this instance the holder of the account would fight for the date of division to be a date after separation and the recipient spouse will desire the date of separation to be date of division. The best way to avoid this area of contention is to establish and agree on a clear date of division and memorialize this date in the Settlement Agreement.
3. Awarding a Flat Dollar Amount in a Recessive Market.
Anyone with a 401(k) or any other retirement account that is influenced by the financial market has likely seen a decrease in the value of their retirement account over the past few years. The divorce process does not change this reality. If during a the divorce proceedings, the recipient spouse is awarded a flat dollar amount, for example $60,000 of a $100,000 retirement account, the recipient spouse and the account holder may be in for a very rude awakening when, upon division, that account no longer holds $100,000 but only holds $50,000. Should the recipient spouse take the entire account, or should the recipient spouse only receive 60% of the account? If the Settlement Agreement or Final Order does not account for this contingency, the former spouses may be forced to resort to post divorce litigation to resolve this matter.
4. Not Addressing Surviving Spouse Issues.
What happens if the holder of the retirement account dies prior to the division of the retirement plan? Depending on the type of retirement plan to be divided, failing to address this issue expressly in the Settlement Agreement or Final Order could result in the recipient spouse not receiving any payments if the holder of the account dies before payments commence.
5. Not Addressing QDRO Processing Fees.
Many individuals do not realize, until it is too late, that defined contribution plan administrators may charge fees, for processing QDROs. On top of this processing fee, plan administrators may charge more if their QDRO form is not used and if the QDRO submitted is rejected for any reason. Generally, these fees range from about $300 to $1800 per QDRO. It is important to obtain this information from the plan administrator in advance in order to avoid any unnecessary fees and to determine which party will be responsible for paying these processing fees.