by Raechel Parolisi
Retirement benefits are often the most significant asset in the marital estate, but are not always given the attention they deserve in a divorce. The Qualified Domestic Relations Order (QDRO) which is required to divide the benefits is often treated as an afterthought or worse, not even drafted. This way of handling retirement benefits, while dangerous for the divorce attorney and the client, can easily be remedied by consulting with a qualified ERISA attorney early in the case.
ERISA (Employee Retirement Income Security Act of 1974) and retirement plans have a language all their own. To understand the benefits available and effectuate an enforceable division, one must speak that language. Simply determining the marital portion of the benefit then plugging it into a model QDRO is not enough. There are numerous plan features that need to be evaluated and negotiated in order to create a division which protects and benefits the client.
The dangers of not utilizing an ERISA Attorney to assist with the division of retirement benefits are present from the beginning of a case and go beyond having a QDRO rejected. Lacking the proper knowledge and understanding of retirement plans can be detrimental to the client and result in malpractice.
Too often, attorneys craft divisions without having or understanding all the necessary information. These divisions result in unintended consequences, unanticipated yet significant inequity, or are simply impossible to implement. A true understanding of plan features is required for a proper division and to competently and diligently represent a client.
Rule 1.01 of the Texas Disciplinary Rules of Professional Conduct requires in part, that an attorney be competent when handling a legal matter or else consult with another attorney who is competent in that area. Thus, a family law attorney who is not familiar with retirement plans is obligated to consult with an attorney who is.
Attorneys who fail to understand the nuances of retirement plans cannot competently advise clients of what they are entitled to or draft an effective QDRO. Bringing in a QDRO attorney after the divorced is finalized does not always to protect a client’s interests.
A QDRO must reflect the terms set forth in the decree. A poorly worded decree could lead to litigation if a disagreement arises over the intent of the language or if necessary information is missing. No one wants to draft the QDRO after the divorce is finalized, only to realize there are terms that were never discussed or that the participant took a loan that was not factored into the division. To prevent this, an expert should be brought in well before the divorce is finalized.
Retirement benefits should be treated like any other marital asset. All information should be obtained about the value and type of benefits available. A screenshot showing the current value of a benefit is insufficient.
As gathering information is a lengthy process, consulting with someone early on who knows what to request, can locate all plans, and who can explain the information received is necessary. Knowing the options available and what a client is entitled to provides an edge in negotiations and the information and guidance needed to prevent money from being left on the table. Neglecting to address every benefit and option can significantly harm a client and have huge financial ramifications.
Particular care needs to be taken with creative divisions such as negotiated settlements in mediation or collaborative settings. The danger of not getting assistance early is that there a high risk of having agreements blow up and collaborative cases torpedoed.
Even an unintentional oversight by one party regarding the value or existence of retirement benefits can result in a breakdown of trust, the agreement and relationships. Worse still is when an agreement is crafted based on a misunderstanding of the value or type of retirement benefits causing the process to start all over.
These types of issues require additional negotiations, time and money, and will require an explanation to the client of why the attorney failed to handle it correctly the first time. Unfortunately, while collaborative law allows for creative agreements, retirement plans cannot always be manipulated to fit them.
These dangers exist for wealthy and low-income clients alike. The complexity of retirement plans needs to be understood when dividing benefits and drafting QDROs. Attorneys can protect themselves and their client from the dangers associated with dividing retirement benefits by becoming well versed in this area of law, or by bringing in a qualified ERISA attorney at the start of a case.
Raechel Parolisi is a solo practitioner. She can be reached at firstname.lastname@example.org.