An oft-overlooked, yet essential legal document in the context of divorce, a qualified domestic relations order (QDRO) assigns a specific portion of a retirement plan to an alternate payee, often a former spouse. Its primary purpose is to ensure a fair and efficient division of assets. Unfortunately, the smooth processing of QDROs is not always guaranteed, as retirement plan administrators may overlook or delay their implementation. Consequently, these administrative hiccups can lead to financial hardship and frustration for the alternate payee.
One such case happened to Jane Doe, who divorced her husband John Doe in 2020. As part of their divorce settlement, Jane was entitled to receive 50% of John’s 401(k) plan, which had a balance of $500,000 at the time of their separation. Their divorce decree included a QDRO that specified the amount and manner of payment to Jane. The QDRO was sent to John’s employer, ABC Inc., and its retirement plan administrator, XYZ Corp., for approval and execution.
However, Jane did not receive any confirmation or communication from ABC or XYZ regarding the QDRO. She contacted them several times, but they either gave her vague answers or ignored her calls and emails. She also contacted John, who claimed that he had no control over the situation and that he was not receiving any updates from his employer or plan administrator either.
Meanwhile, John continued to work at ABC and contribute to his 401(k) plan. His account balance grew to $600,000 by the end of 2021. Jane was still waiting for her share of the plan, which should have been $250,000 plus any earnings since their separation. She was struggling to pay her bills and support her children, while John was enjoying his income and retirement savings. In the end, she lost track of the QDRO after so many ignored emails and phone calls directed at the plan administrator.
Two years later, she decided to follow up. The plan administrator claimed that they had never received the order and initially refused to pay anything to Jane. She forwarded an old email from them acknowledging receipt of the order, plus a new certified copy of the order from the court. After another few months, the plan’s attorney finally reached out to confirm that they had the order and would process it. It took another three months for them to run the calculations and separate her funds. All told, it took the plan more than three years to pay her her share of the funds. And she was lucky – many people in her shoes lose the funds entirely when the participant withdraws funds after a QDRO gets misplaced.
Jane was relieved and happy that she finally received her rightful share of John’s 401(k) plan. However, she also felt angry and bitter that she had to go through such a long and painful ordeal because of ABC’s and XYZ’s negligence and indifference. She wished that they had honored the QDRO from the beginning and spared her from the financial and emotional hardship that she endured.
Jane’s story isn’t unusual – it’s very common for courts to let QDROs sit on a desk for months without acting and for the plan to do the same. While we can help with the drafting – our software makes QDRO prep into a quick affair – it is up to you to continue to follow up with the other party, the court, and the retirement plan until the order has been processed and everyone paid out.
