February 1, 2013
According to Edwin Schilling III, JD, one of the most significant problems with QDROs is not having them prepared before the divorce is final. Mr. Schilling lectures attorneys on "The 30 Most Common Errors in QDROs."
The reason this is such an enormous problem is that after the divorce is final, the former spouse has no rights to something that was not legally addressed. If the participant spouse dies before the QDRO is prepared, the former spouse loses rights to share in the retirement plan. As Schilling says in his program, "Once the marriage is over, if there is not an appropriate order in place, the former spouse has no more rights to the retirement and benefits than does my mother. The former spouse is a stranger to the plan without an order."
If you represent the non-employee spouse, you should be concerned about three possible events after the marriage ends: the death of the employee/retiree, retirement, or remarriage. Each of these can set in motion a chain of events that could drastically affect the non-employee spouse.
In any case, absent unusual circumstances, you should offer to draft, or oversee the drafting of, the QDRO for two reasons: to a large degree, you will then control the content and timing. If you are representing the non-employee spouse, there are two additional reasons: (1) In too many cases, the attorneys rely on the (assumed) "one size fits all" model order from the plan. The sample document that comes from the plan administrator is customarily worded to favor the plan or the employee, not the non-employee spouse. (2) You have the opportunity to have the QDRO entered by the court before the marriage ends. To the degree possible, have an approved draft ready when you go in for the final hearing. The judge will often accept your draft. This means that you will need to engage the services of the QDRO consultant well in advance of the dissolution.
Sometimes it is not possible to have the QDRO drafted before the divorce is final. In this case, a short form interim QDRO can be used which only addresses what happens if the participant spouse dies. Your QDRO consultant can assist in the preparation of such an order after studying the plan documents and options.
Mr. Schilling says that he has had 13 cases when the participant spouse died before the QDRO was prepared and he had to explain to the non-member spouse that she/he may have lost everything. These cases usually result in malpractice claims against the attorney of record.
Mr. Schilling shares a couple of his worst stories. In the first one, his client was the wife who was married to a Federal Civil Service employee who was not entitled to Social Security. The spouses were in their 60’s and had been married 40 years. They had agreed that she would receive half of his pension and survivor benefits worth more than $3,000 a month. The lawyer for the wife begged the judge to enter Mr. Schilling’s order at the time of the dissolution, but the judge refused and set a follow-up hearing date three months later to deal with property issues. The next week the husband died. How would you like to be the one to tell this lady that she will have no income and that the benefits of 35 years of federal employment were gone?
In another case, the husband remarried before the QDRO was prepared. In fact, before the divorcing couple appeared before the judge for the final hearing, the wedding invitations had been sent out for his next marriage! He promptly named his new wife as the surviving beneficiary on his retirement plans and on his life insurance.
In some jurisdictions and under some plans, nunc pro tunc orders can be used, but not often. But there is no reason to risk a bad result – plan ahead.
