Five Ways to Avoid Malpractice Even if You “Don’t Do QDROs”
The seemingly benign acronym, “QDRO,” (or qualified domestic relations order) is often viewed as a metastatic disease by family law practitioners, as it is frequently used in conjunction with other words like “liability” and “malpractice.” Luckily, QDROs do not have to be scary malpractice traps. There is no need for every family law practitioner to be qualified to draft them – that is why experts exist. But an expert can only do so much after-the-fact; most of the legwork needs to be done while the divorce case is still pending. Estates attorney, Sarah Broder shares five tips each practitioner can take to ensure that everything goes smoothly once the litigation piece of the case has concluded.
The seemingly benign acronym, “QDRO,” (or qualified domestic relations order) is often viewed as a metastatic disease by family law practitioners, as it is frequently used in conjunction with other words like “liability” and “malpractice.” Luckily, QDROs do not have to be scary malpractice traps. There is no need for every family law practitioner to be qualified to draft them – that is why experts exist. But an expert can only do so much after-the-fact; most of the legwork needs to be done while the divorce case is still pending.
It is important to note that although this article mostly refers to QDROs, they are not the only flavors of domestic relations orders that may become necessary at the end of a divorce case. For those that do not know, domestic relations orders are enforcement tools that direct a plan administrator to pay an “alternate payee” (usually a former spouse) a portion of the employee/participant’s retirement benefit pursuant to the terms of a divorce decree. A QDRO is a qualified domestic relations order applicable to private employer-sponsored retirement plans governed by ERISA . The plan administrator is the only entity that can qualify a domestic relations order and apply it to the participant’s plan benefits. Government-sponsored retirement plans, such as federal civil service and military pensions, are not governed by ERISA.
Although they have different terms for domestic relations orders (e.g., Court Order Acceptable for Processing and Constituted Pension Order, respectively), such orders generally serve the same purpose as QDROs in that they direct the plan administrator to enforce a division of retirement assets provided by a divorce decree. Many judges, magistrates and practitioners use the acronym, “QDRO,” as a “catch all” term to refer to orders necessary to divide pension assets of all sorts.
Regardless of the plan type, the five tips below are simple precautions each practitioner can take to ensure that everything goes smoothly once the litigation piece of the case has concluded.
- MAKE SURE YOUR RETAINER AGREEMENT CLEARLY STATES THAT YOUR REPRESENTATION DOES NOT INCLUDE THE PREPARATION OF DOMESTIC RELATIONS ORDERS
This step needs to occur before the client even walks in the door for the first consultation. If you “don’t do QDROs,” as I hear from many family law practitioners, make sure that your client knows that, too, and that this understanding is memorialized in writing.
Of course, your client might not know what a QDRO is or why it would be necessary, so a retainer agreement that says “my representation does not include the preparation of QDROs” may not be enough. A more prudent approach is provide the client with clear written communication that QDRO preparation is not part of your practice and often times a QDRO preparer is necessary to draft the documents required to effectuate the terms of a parties’ marital settlement agreement or the Judgment of Absolute Divorce. As the case is winding down, it is important to refer the client to someone who can prepare the necessary domestic relations orders after the Judgment of Absolute Divorce is entered by the Court.
- ASK FOR ALL RETIREMENT INFORMATION DURING THE DISCOVERY PROCESS
As an attorney whose practice consists of drafting QDROs, the first documents I ask for from an attorney client are the (1) plan benefit summary, (2) the plan’s model QDRO and procedures and (3) the participant’s most recent benefits estimate or statement. At least half of the time, one or more of these documents is missing.
What is the harm in waiting until the end of the case? First, waiting might result in your client unwittingly sacrificing benefits to which he or she may have been entitled as a former spouse but did not consider. Not all retirement plans are created equal, and some plans offer special benefits to former spouses. For example, some plans provide continuing health coverage to participants’ former spouses and survivor benefits at no cost to either party. Most of the time, the participant/employee does not know these benefits exist. Issuing a subpoena duces tecum directly to the plan may help to ensure receipt of necessary documents when they are not willingly provided.
Waiting until the other party retired (which can often be 10 to 20 years after the divorce), makes it exponentially more difficult for the client to obtain any information about the plan and/or the participant’s service at that time.
As employers move away from private defined benefit plans, the employee-spouse may have his or her interest “bought out” with a lump sum payment or the plan may become defunct. In these scenarios, waiting years or decades could mean that the plan may no longer exist and the client may have potentially missed out on partial payments prior to the plan’s demise. These scenarios that wake us up at 3:00 a.m. can often be avoided.
- KNOW THE DIFFERENCE BETWEEN A SEPARATE INTEREST AND SHARED INTEREST BEFORE DRAFTING THE AGREEMENT OR TRYING THE CASE
Many corporate and union defined benefit pensions (i.e., those pensions that provide a monthly benefit to the retiree) offer two different payment options to alternate payees: separate and shared interests.
Let’s start with the “easy” one. A shared interest is what is typically thought of when dividing a defined benefit plan. With the shared interest approach, the former spouse receives a share of any payment owed to the participant spouse. The payment is made to the alternate payee if, as and when the participant receives payments from the plan. In other words, the alternate payee does not get paid until the participant actually retires and is in pay status. The alternate payee’s interest in the participant’s benefit also terminates upon the participant’s death (unless the alternate payee has an interest in a survivor annuity).
With a separate interest, the plan administrator carves out a portion of the participant’s benefit into a separate benefit for the former spouse. The alternate payee’s separate interest is actuarily adjusted for his or her life expectancy, making it difficult to forecast the approximate amount he or she will receive. Because of the actuarial adjustment, separate interests are only available to former spouses before a participant retires and begins receiving payments under the plan, a decision that may have been made years prior to retirement or divorce. A benefit to choosing a separate interest is that the former spouse does not have to wait until the participant retires to begin receiving payments. Rather, the former spouse can usually begin collecting his or her actuarily adjusted payment at the earliest retirement age under the terms of the plan. There is also no need for a survivor annuity with a separate interest plan; the former spouse’s benefit is its own separate account, so it is not affected when the participant dies.
There is no one-size-fits-all approach to choosing a separate or a shared interest; it will be a different analysis for every client depending on his or her needs, goals, other retirement assets (including Social Security benefits), and the age and health of each party. What is important is that you are aware that the two options exist and can describe the advantages and disadvantages of each approach. If the language of an agreement or court order is silent on the issue or says “if, as and when,” it will likely be interpreted as a shared interest approach.
- KNOW THE DEADLINES AND RETAIN AN EXPERT IF NEEDED
Pensions are paid over a long period of time, which can add up to a large sum of forgone money when deadlines are missed.
There are two major deadlines relating to survivor benefits of which to be aware. For military pensions, every practitioner must know that a servicemember’s former spouse must deem an election for coverage under the military Survivor Benefit Plan (“SBP”) within one year from the date of the divorce, otherwise it is deemed forfeited. It is important to note that you can perfect your client’s survivor benefit interest, provided it is included in a written separation/marital settlement agreement or Judgment without the necessity of an executed Constituted Pension Order. Providing a copy of the documents to the Defense Finance Accounting Service (“DFAS”) puts the military on notice of the servicemember’s former spouse’s interest. It may be prudent to submit the agreement or Judgment while you continue to work through the necessary language for the required pension order to safeguard the client’s interests.
Plans administered by the Maryland State Retirement Agency (e.g., state police, teachers, firefighters) also have a hard-and-fast deadline relating to survivor annuities. Once a participant receives his or her first payment as a retiree, the participant is prohibited from changing the benefit allowance he or she chose at retirement. What does that mean for you as the practitioner? Make sure the language in your agreements and orders is clear as to all of the rights and benefits the recipient spouse is entitled to when the participant spouse retires.
If the participant is already retired, it is equally important to know what survivor benefit they selected at the time of retirement. While it cannot be changed at the time of divorce, you can negotiate to receive other benefits, life insurance, and assets to attempt to address an inequitable distribution of the marital estate.
Of course, these are not the only two deadlines that exist with retirement assets. That is why it is important to get the plan documents during litigation, which will give you enough time to seek assistance from an experienced QDRO preparer when it becomes necessary.
- HAVE THE BASIC DOMESTIC RELATIONS ORDERS DRAFTED AT THE TIME OF THE HEARING
When cases are resolved by way of a marital settlement agreement, the necessary domestic relations orders can be drafted ahead of time and brought to the uncontested divorce hearing for submission to the court. If you “don’t to QDRO’s,” consider hiring a QDRO preparer at the settlement stage of the case who can advise you of the nature of the pension and provide language for your agreement.
Even if the case will be going to trial, you can still have a basic outline of the orders drafted so you can quickly finish them once the ruling is issued. It may be just a matter of filling in an amount and then the QDRO can be filed with the court.
As I am sure we have all experienced, many clients disappear once the Judgment of Absolute Divorce is issued, making it almost impossible to get any domestic relations orders completed. Don’t let this be you. Be clear from the beginning, in the middle and at the end of the case, preferably in writing, about who is doing what with respect to pension orders.
Sarah Broder approaches the practice of law with enthusiasm and great care. She has a strong ability to hear her clients’ goals and concerns in order to help them to effectuate their plan and related documents even if those clients are not able to fully articulate these needs initially. Sarah focuses her practice on all aspects of estate planning, from helping clients prepare necessary documents for wealth, asset and beneficiary protection, and succession planning, as well as charitable gift planning techniques. She believes that everyone can benefit from estate and disability planning, especially if minor or disabled children are involved in light of her background with family law. Sarah specializes in preparing necessary orders to divide retirement assets pursuant to a divorce (including private employer-sponsored plans governed by ERISA, Federal Government pensions, Thrift Savings Plans, military pensions, etc.).
When Sarah is working with clients, her goal is to put them at ease and reassure them that proper planning will help them avoid any horror stories they may have heard. She makes sure to walk her clients through a variety of potential outcomes so that they can address each one strategically and in a manner that meets their needs. Client-centered and dedicated to providing thorough and responsive legal services through all phases of representation, Sarah loves and appreciates working with clients on a range of matters from complex cases to ones that require more basic advice, as well as handling the administration of their or a loved one’s estate or trust.