After fighting an exhausting divorce battle, most people are not in a hurry to engage in even more paperwork. That’s probably why it is so common – though foolhardy – to wait to pursue the division of retirement accounts after your divorce is finalized.
Retirement division is typically accomplished via a QDRO, or a qualified domestic relations order, which is a legal document that allows a former spouse to receive a portion of the retirement benefits of their ex-spouse. A QDRO is often used to divide pensions, 401(k)s, and other retirement plans in a divorce settlement. But when should you file a QDRO? And is there a deadline or an expiration date for filing a QDRO?
Pursue a QDRO Immediately After Divorce
For the non-employee spouse (often referred to as the “alternate payee,” waiting to file a QDRO can have disastrous consequences. For cash-based deferred compensation plans, such as a 401(k), the least-bad thing that can happen is that the plan loses the records needed to calculate your share after some time has passed. This is surprisingly common – many plans will change recordkeepers, such as moving from Fidelity to Vanguard, at some point in its existence and when it does, the records are lost. At other times, plans will simply have a policy that they won’t look at records older than a few years.
When records are lost, and calculations cannot be made, the parties are often stuck at an impasse where they have to hire an expensive expert to calculate shares or come up with their own guess on what the shares should be after years of stock market performance affecting the account. Rather than deal with this issue, the parties should pursue the QDRO immediately after the divorce, while the records are at hand.
Other common problems with waiting include funds being moved or spent, the death of a party, or in the case of a pension, the employee retiring and locking in benefits that affect the alternate payee’s share.
As for the employee, there’s nothing more frustrating than going to retire and finding out that your retirement account is still frozen due to a years-old divorce – this happens often, especially with pensions, and can prevent you from retiring for years while you track down an ex and prepare a QDRO.
It may be a bad idea to wait, but is there a time limit or expiration date on QDROs?
The answer to this question may depend on the state where you live and the type of retirement plan involved. In general, most states do not have a statute of limitations (time limit) for filing a QDRO. This means that you can file a QDRO at any time after your divorce is finalized, as long as the retirement plan still exists and has funds available. However, some states may have different rules or exceptions that could affect your ability to file a QDRO.
For example, in Kansas, there is no statute of limitations for filing a QDRO, but the court may consider defenses such as laches or dormancy statutes if the former spouse waits too long to file a QDRO. Laches is based on the principle that “equity aids the vigilant, not those who sleep on their rights’. Laches can be invoked when there is an unreasonable delay by the beneficiary in pursuing the claim, and this delay causes prejudice to the plan participant or the plan administrator. For example, if the beneficiary waits for several years after the divorce to obtain a QDRO, and in the meantime the plan participant remarries, retires, or dies, laches may bar the claim. Laches are very often argued but also almost never succeed. It’s most likely application might be to bar a late coming alternate payee from asking for back payments if they wait for years after the other party retires on a pension.
Another issue is dormancy statutes, which are statutory rules that prevent a party from trying to enforce a divorce judgment after many years have passed. These statutes are extremely rare – Kansas is the only state that comes to mind that has explicitly applied such a rule to QDROs – but it is not impossible for another state to do so. (Legal cases on QDROs are few and far between, perhaps because after a long divorce, most parties are too financially destitute to pursue litigation and appeals over QDROs, and perhaps because anyone financially dependent on retirement payments probably can’t afford these expensive appeals lawyers.)
Using Kansas as an example, division of retirement assets as part of a divorce is a judgment subject to dormancy and revivor. A QDRO must be submitted to the district court for certification and sent to the plan for qualification within five (5) years from the date of divorce, K.S.A. 60-2403, or within an additional two years if the judgment has been revived under K.S.A. 60-2402. In a landmark legal case, called In re Larimore, 52 Kan.App.2d 31 (2015), a wife’s percentage of her husband’s retirement account was lost under Kansas dormancy law after she waited to pursue the QDRO.
Legal Time Limits or Not, Just Do The QDRO
Even if your state does not have an “expiration date,” or time limit for QDROs, it is advisable to file a QDRO as soon as possible after your divorce is finalized, or even before if possible. This will ensure that each party’s rights to receive retirement benefits are protected and that you do not lose them due to any unforeseen circumstances. Further, it will ensure that the split is as fair and accurate as possible, as the account records will be available for respective calculations of shares.
Once a divorce agreement is signed by a court, QDRO rights may never expire but may become unenforceable if the money or plan records disappear or a party dies or retires. Filing a QDRO promptly will avoid these headaches and secure your retirement benefits.
We’ve worked hard to make preparing a QDRO an extremely painless process – answer a few questions about your divorce agreement and retirement plan and you’ll be on your way with a draft QDRO within minutes. Plus, we allow you to preview your document before you pay, so that you can be sure that you’re getting a document that clearly addresses your retirement benefits and matches your intended divorce terms – get started today!