Most retirement accounts (401k, pension, profit sharing plans, etc.) are governed by a federal law known as ERISA (Employees Retirement and Income Security Act). In a nutshell, the Act prevents transfer or alienation of retirement benefits. Specific provisions are made for the division of accounts at divorce. Because the employer who maintains the 401k is not a party to the divorce, the divorce judgment dividing the account does not bind the employer. Therefore, the judge will issue a separate Qualified Domestic Relations Order (QDRO) to divide the account, which must then be accepted by the administrator of the retirement plan (hence, the “qualified” part of the order). The orders must be written very specifically, and must be in agreement with the plan’s rules and benefits. Each plan is different, and a careful reading of the plan documents is necessary. Understanding the plan benefits and drafting these orders requires very specific knowledge, and often a separate attorney is retained for this purpose. No former spouse wants to find out at retirement, sometimes 20-30 years after divorce, that the QDRO did not properly divide the benefit. The financial consequences can be severe, and sometimes unfixable. Federal government and military retirement plans present their own challenges.
Because retirement benefits are often the most valuable asset in a marriage, it is imperative that the QDRO is drafted correctly. The parties must also understand the plan’s available benefits prior to division, so they negotiate from a knowledgeable position. Retirement benefits are too valuable to leave to chance. I constantly address division of retirement benefits in my family law practice, and I am happy to consult with spouses on these issues.