August 23, 2016

Covering All QDRO Bases in a Divorce

Division of Property

There are many financial assets that divorcing couples must decide how they will divide up. One of the most common assets is the retirement account or accounts they may have. It is not uncommon – especially if the marriage has been a long one – for a percentage of one spouse’s retirement account to be awarded to the other spouse. In these cases, a qualified domestic relations order (QDRO) is drawn up which specifies how the account will be divided. This QDRO is then given to the financial institution overseeing the retirement account who will disperse the funds accordingly.

But what happens if the other spouse dies before the plan participating spouse actually retires? What happens to the deceased spouse share?

This was a question that one couple failed to ask when the original agreement and QDRO was being drafted. In 1978, the husband began working as a sheet metal worker. He and his wife were already married, but divorced in 2002. The wife was awarded 50 percent of three pension funds the husband had. One of those funds was a defined-benefit pension plan, meaning payments would not begin until the husband actually retired.

In 2011, the wife passed away. Since the husband was still working at the time of her death, she never received any funds from the pension account. In 2015, the husband retired and applied to begin receiving funds from the pension. He had assumed that because the wife had died, her share would revert back to the funds he would receive.

Not so, according to the pension fund administrators, who said that because the QDRO awarded the wife 50 percent, and because she had passed away, her share would revert back to the fund, and not the husband. The fund administrators based this on a default rule for QDROs, which stated, “Upon the alternate payee’s death before benefits commenced to him or her, the alternate payee’s assigned benefit will be forfeited and will revert to the [plan/participant].”

The husband was forced to fight to get his wife share of the pension fund back. He eventually won when the courts ruled in his favor. However, the case is a strong reminder that when a divorcing couple is negotiating the division of assets and property, every possibility should be addressed and legally documented. Situations like this one can be avoided if QDROs have a provision of what should happen to the funds should an ex-spouse being awarded those funds pass away before collecting.

Financial negotiations can be difficult, which is why you should contact a qualified DuPage County family law attorney. Call Mulyk Laho Law, LLC today at (630) 852-1100 for a free consultation.