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Qualified domestic relation orders can save your golden years

by | Mar 18, 2016 | Property And Asset Division

It is said that childless couples traditionally fight over three topics: sex, money and work. Couples with children traditionally fight over four topics: sex, money, work and the kids. When divorce strikes, those fights tend to boil down to two topics: money (property such as the house falls into this category) and kids. While many people assume that the money battles are about who gets to keep the house, which parent is going to ante up for college funds and who owes what to whom in terms of spousal support, the reality is that some of the most heated battles occur over pension plans.

Think of pensions as an employer-funded retirement plan. They dominated headlines not long ago when many companies suddenly announced that they were reducing, or altogether doing away with, pension funds. Employees, especially those who were nearing retirement age and had worked for these companies for decades, were upset because they were depending on these funds to keep a roof over their heads when they retired. While pension-fund holders and their partners knew they had to take up arms (figuratively speaking) against these companies in an attempt to get their pensions reinstated, divorcing couples may not realize that in a divorce they may need to engage in similar tactics to ensure that they each receive a fair share of this hard-earned capital.

The state of New York states that pensions belong to the payor (the worker who earned the pension). In a divorce settlement, the alternate payee (the spouse without the pension) is not entitled to receive a portion of the pension payout without a complex legal agreement called a Qualified Domestic Relation Order, or QDRO.

A QDRO is a legal document detailing how a pension plan will be divided between the divorcing parties. Failure to create a QDRO can have severe financial repercussions for both parties. Even if a division of property agreement is created at the time of the divorce, the alternate payee is not legally entitled to a portion of the funds if the payor changes his mind. Furthermore, the payor may be stuck with hefty taxes that he could have avoided with the creation of a QDRO. For those reasons, it may be beneficial to have a lawyer experienced with QDROs draw up the final paperwork.