It’s easy to make mistakes when you’re going through a divorce. Frankly, there’s a lot to remember and a lot of different things that have to be handled — everything from deciding what to do about the house to splitting up the furniture.
It’s really important, however, that you don’t lose sight of the value of any 401(k) plans or pensions for your future, as a mistake there can cost you in ways you don’t anticipate.
What’s one of the biggest mistakes that someone getting a divorce can make in regards to a pension?
It’s forgetting to get a qualified domestic relations order (QDRO). It happens more often than people realize simply because they think that the judge’s order on their divorce decree is enough to give them access to their ex’s pension funds. But it isn’t.
QDROs have to be prepared specifically for each pension or 401(k) account. They’re a separate document, prepared by an attorney — and not every divorce attorney handles them. QDROs reflect the contents of the divorce decrees signed by the judges, but these legal documents are required if you want to access any part of your spouse’s pension.
QDROs dictate things like whether or not the money you are due gets transferred to an IRA (which affects the way the money is taxed) or is sent to you directly (which can usually be done without suffering a penalty for early withdrawal for a limited time following the divorce).
It’s really important to go through any QDROs with the preparing attorney present and your divorce decree in hand, as that’s the only way to make sure that serious mistakes don’t happen.
For example, imagine that your divorce decree says that you get half of your spouse’s pension when he or she retires. The pension is currently valued at $400,000. If the QDRO shows that you are entitled to $200,000, that could deprive you of a significant future gain as more money accrues in that account over the next few years. But you wouldn’t be able to correct the error at some future point. It’s important to get it right the first time.
If your divorce attorney isn’t comfortable handling QDROs, make certain that you get assistance from one who is.