We were reading financial columnist Michelle Singletary’s latest column in the Washington Post a few days ago when something in the article really grabbed our attention. It wasn’t the column itself, which was about “401(k) millionaires” – instead it was a reader comment buried far down in the Singletary column that set off warning bells. We felt this information needed to be shared with our AgingOptions blog readers.
An Unexpected Shock
A reader wrote to Singletary reporting that her husband had retired from the federal government some time ago. He had begun receiving estimated pension payments while the personnel office took their customary period of time (typically several months) to check the records and work out the details. Four months after his retirement, much to his shock, he received a letter from the federal Office of Personnel Management notifying him that henceforth half of his retirement pay and all of his retirement survivor benefits would be going to his ex-wife. Apparently, this gent had never read his divorce agreement which clearly stated what his ex would receive once his retirement date rolled around.
Fortunately, this case had a happy ending: the ex-wife had just started receiving her partial payments – completely unexpectedly – but as it happened, she was planning to remarry and wanted no part of the man’s benefits. The personnel office was able to get the situation settled in favor of spouse number two after an attorney successfully drafted documents reversing the original divorce agreement. But this does bring up a vital question: is there a way for divorcing spouses to protect each of their rights when it comes to divvying up retirement assets such as 401(k) balances, which these days are often among the largest assets a couple approaching retirement age owns?
Protecting Your Rights in a Divorce
At AgingOptions, our attorneys deal with this issue frequently. In searching for an article we could share with our readers that would answer the question, we found this insightful column on a website called The Balance, an article that appeared just a few months ago. “Even while you’re going through the difficulty of a divorce,” this article advises, “you need to make informed financial decisions regarding the division of the property that you and your spouse have accumulated during your marriage.” Because retirement savings, as we said above, are often a couples’ biggest asset, dealing properly with their disposition is vitally important. Sadly, however, this is often done improperly – or not at all. “Even as one of the most important issues, [retirement savings] also tend to be very complicated, subject to tax implications, and often not handled properly because of it,” says The Balance. The solution, this article says, is something called a QDRO, pronounced “Quadro” – a Qualified Domestic Relations Order.
Legally, if you or your spouse has an employer-sponsored retirement plan, you’re entitled to part of the balance. The converse is also true: if you’re the one with the retirement account, your spouse is legally entitled to a share. “But if your spouse was the primary breadwinner,” asks the column in The Balance, “how do you protect your share of his or her retirement account? What’s to stop your spouse’s employer from paying out the benefits to your spouse or ex-spouse, leaving you with little or nothing? The answer is generally a Qualified Domestic Relations Order.” The QDRO is a court order that tells your spouse’s pension plan how your benefits will be paid out. Under such an order, for example, your share of the 401(k) can be separated out from the original account and deposited into your own IRA or 401(k) without penalty. The word “qualified” means the plan has to be approved both by the divorce court and by the Plan Administrator where you or your soon-to-be-ex-spouse is employed.
Preparation Requires Education
We won’t attempt to go into greater detail here, because the variables involved in a Qualified Domestic Relations Order can quickly get complicated. This is clearly one area where you need to plan ahead and get good legal counsel before proceeding with a divorce. As the column in The Balance says, “Divorce can be costly be in terms of upfront attorney fees and emotional health. But it can also have costly effects on your future financial security. Educating yourself is the first step. But be sure to take the appropriate legal steps to protect your rights and always employ a qualified team to help you do so.” We here at AgingOptions can certainly advise you in this critical area, and through our many regional offices of LifePoint Law, we can serve as your advocate should you prefer. Please contact us and allow us to walk you through the various scenarios in the often-confusing area of dividing assets – both today’s assets and tomorrow’s – in a divorce or separation.
When it comes to walking you through the various scenarios of retirement, that’s a particular specialty of ours. Retirement can also be confusing and complicated, but our desire is to help you make these important retirement planning decisions more manageable so that you can achieve the three most commonly-stated goals people have as they age: to avoid running out of money, to avoid becoming a burden to those who love them, and to avoid unplanned and unwanted institutional care. If these goals are so commonly, why do so few retirees ever succeed in realizing them? Because they fail to plan.
To protect your interests, we employ a strategy called LifePlanning, in which your finances, legal affairs, housing options, medical coverage and family communications are all woven together seamlessly, each element reinforcing the others. A LifePlan truly is the blueprint that will help you build the retirement of your dreams. Ready to learn more, without obligation or cost? Then come join Rajiv Nagaich soon at an AgingOptions LifePlanning Seminar. We have several scheduled for the coming weeks, and there’s bound to be one that’s convenient for you. Visit our Live Events page for details and online registration, or contact us for assistance. We’ll look forward to meeting you!
(originally reported at www.thebalance.com)