Wednesday, May 16, 2018

Avoid Delays in Retirement Division with this QDRO & DRO Checklist

This is a guest post from Justin L. Kelsey's consulting business, Gray Jay Endeavors LLC.  Gray Jay provides QDRO and DRO preparation, and education and consulting services relating to retirement division in divorce.  Gray Jay has been working on resources to assist attorneys, mediators, and parties in this process, such as the following checklist:

Download the Retirement Division Checklist

Retirement Division Basics:

In order to divide retirement as a part of a divorce, there is a one-time exception to the normal tax implications for withdrawals from retirement.  This exception allows a non-taxable transfer to a spouse's or ex-spouse's retirement account.  This can include the division of pensions, 401ks, IRAs and other types of retirement.  The document required to complete this transfer is usually called a Qualified Domestic Relations Order (“QDRO”) or Domestic Relations Order (“DRO”) depending on the type of retirement plan.

Most attorneys and mediators recommend hiring an expert to prepare the QDRO or DRO to ensure that it is prepared properly.  Gray Jay Endeavors LLC offers flat fee preparation of QDROs and DROs, and also offers hourly consulting services to ensure that divorce agreements contain the necessary language for the proper division of a retirement account.

Proper Preparation to Avoid Delays:

Incomplete divorce agreement drafting is the primary reason for a delay in completing a QDRO preparation and implementing the transfer of funds.   Too often divorce agreements contain only partial information needed to divide a retirement account.  When the information is incomplete in the agreement, the QDRO preparer can either make assumptions about the intent of the parties, or can ask the parties or professionals to clarify.  If the QDRO preparer doesn't ask these questions and just makes assumptions, then they could potentially be deciding significant financial decisions for the parties without their knowledge.  We strongly recommend working with QDRO preparers who ask the right questions, and don't make assumptions.

Unfortunately, the right questions can sometimes lead to disagreements over the details of the division.  One example of this type of disagreement arises when an agreement gives a date of valuation for the account, but doesn't indicate whether market changes (gains and losses) from the date of valuation are to be shared or not.  The QDRO takes time to prepare and implement so the market changes can be significant.  While most parties intend to share in the gains and losses, we never assume that is the case.  If this wasn't addressed in the agreement, we ask, and if the parties disagree, then the time it takes to reach agreement or obtain a new court order can cause a long delay.

In order to avoid these types of delays we recommend including all the necessary details in the divorce agreement.  To assist parties and professionals in knowing what those details are for each type of typical retirement plan, we have created a Retirement Division Checklist.  The checklist helps ensure that all of the necessary issues are addressed prior to finalizing your agreement.  If you are unclear about any of the required information and where to obtain it, we recommend contacting a QDRO preparer before finalizing the Agreement.  Many, like Gray Jay, will also assist in drafting Agreement provisions related to retirement.

Guest Post from Gray Jay Endeavors, LLC

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