One of the most significant problems with QDROs is not having them prepared before the divorce is final.
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. 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 anyone else. The former spouse is a stranger to the plan without an order.
When working with the non-employee spouse, there are three possible events (after the marriage ends) that are of concern: 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.
Therefore, a draft QDRO should be prepared for two motives: control over the content and timing. For those representing the non-employee spouse, there are two additional reasons: (1) Avoid using the “one size fits all model order from the plan. Unfortunately this is the most common approach. 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. If possible, having an approved draft ready when you go in for the final hearing is ideal. Often times the judge will accept this draft. This means that the services of the QDRO consultant will need to be engaged 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. A qualified QDRO consultant can assist in the preparation of such an order after studying the plan documents and options.
How about these examples of QDRO horror stories… Michelle was married to a Federal Civil Service employee (David) who was not entitled to Social Security. The spouses were in their 60’s and had been married 40 years. They had agreed that Michelle would receive half of David’s pension and survivor benefits worth more than $3,000 per month. Michelle’s lawyer begged the judge to enter the QDRO 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. Prior to that meeting David died. The result was Michelle did not receive any income and the benefits of 35 years of federal employment were gone.
In another case, the husband got remarried before the QDRO was prepared. The husband 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. There is no reason to risk a bad result—plan ahead.