A qualified domestic relations order (QDRO) is used in a divorce to divide the retirement, pension and other such interests of parties. Whether you actually draft QDROs yourself or refer your clients on to another attorney for the drafting of the QDRO following the signing of the decree of divorce, it is critical that you include proper language in the parties’ stipulation on divorce to enable the QDRO process to occur efficiently. Poorly drafted language in the QDRO section of a decree of divorce can often lead to expensive and time-consuming procedures for your client down the road. The following are a few simple steps to remember as you include QDRO language in stipulations drafted for your clients.
First, identify the name of the plan being divided and the person whose account it is rather than using general terms. For example, state, “Respondent has a 401(k) plan through his employer, IBM” rather than simply drafting, “The parties have acquired an interest in retirement.”
Second, identify the specific method by which the account should be split. A common method in Utah is to refer to the Woodward formula, which is a formula derived from Utah case law that divides the retirement equally between the parties for all retirement earned during the marriage. The problem with using the term Woodward formula to set forth how retirement should be divided is that while some plan administrators recognize such language and will perform a split using their own in-house formulas, others will not. To be conservative, avoid using the term Woodward formula and instead state a specific percentage or dollar amount to be awarded to the non-account holding party. If you are going to use the Woodward formula, use language that provides the drafting attorney a way of implementing the Woodward formula himself such as, “The drafting attorney shall calculate the marital share owed to the non-participant party by using the months of marriage divided by total months of enrollment in the plan.” If you do choose to use a percentage, be sure to indicate the date on which the percentage is to be calculated. Regardless of which method you choose to use, make sure to also include language regarding whether existing loans against the account should be calculated into the awardee’s share.
Third, identify which party is responsible for having the QDRO drafted and provide a time limit for drafting so that if the responsible party drags his or her feet, the other party has recourse. Remember, QDROs often take three to four months to receive preliminary approval from the plan administrator, a signature from the judge and performance of the split by the plan administrator, so the time limit should not be overly burdensome. Most QDROs can be completed within six months or less.
Fourth, always identify how the costs will be split for the QDRO drafting, including not just fees for drafting the QDRO, but also other fees charged by attorneys or plan administrators. It is important to include such language because while some plans are divided via QDROs, others require a similar amount of legal work to divide, but do not actually require a QDRO be drafted. Additionally, others include provisions in the plan stating that certain amounts of administrative fees will be charged to the parties by the plan administrators.
Fifth, include a provision requiring both parties to agree to cooperate and sign whatever documents necessary to perform the division of the accounts to ensure that time-consuming methods, such as filing subpoenas because the other party refuses to provide simple information regarding the account will be avoided.
Finally, when dealing with military retirement, proceed cautiously. Military retirement differs significantly from dividing traditional retirement plans and if the language in the stipulation is not properly drafted, it can cause significant problems down the road in its implementation. Make sure to research the specific type of military retirement involved so the correct language is included in the stipulation or consult with an attorney who specializes in drafting QDROs.