Retirement Benefits in Divorce
For over a decade, attorney Anthony J. (Tony) Vetrano, at the King of Prussia law firm Vetrano|Vetrano & Feinman LLC, has been preparing court orders that transfer retirement benefits in a divorce.
His clients are often other lawyers who are more comfortable having such orders prepared by someone more familiar with this specialized work.
Transferring Retirement Benefits
Many divorces call for the transfer of retirement benefits from one spouse (or former spouse) to another.
Such transfer can occur only via a court order that complies with the law. The order is submitted to the retirement plan’s administrator who then transfers the benefits in accordance with the order.
Examples of the persons whose retirement benefits can be transferred are: private company employees, state government employees, federal government employees, military personnel, and railroad employees. For those who divorce later in life, transfer of benefits is also an important concern. Different retirement plans are governed by different laws. And, in each case, the law is extensive and complex. Preparation of the court order requires familiarity with such law.
Valuing Retirement Benefits
Often, the decision on the amount of benefits to transfer must be preceded by determining the benefits’ value. (Retirement benefits, like any other marital asset, must be valued.) For example, if the retirement benefits an employee has accrued mean that at retirement the employee will receive $4,000 per month, the question is: What is the value, today, of such future stream of payment? Also, the value of benefits can sometimes be offset against the value of other marital assets.
Mr. Vetrano has determined the value of benefits for all types of retirement plans. In addition, Mr. Vetrano has also benefited his clients by uncovering errors in valuations done by others, including actuaries and accountants. Such error has extended to tens of thousands of dollars, and sometimes more.
Retirement Benefit Waivers at Divorce and Death
At divorce, retirement benefits are often part of the marital estate. At times, the retirement benefits are shared between the divorcing spouses and divided by Qualified Domestic Relations Order (QDRO) so that there are not taxes or penalties incurred. Other times, one spouse may retain the retirement benefits earned during the marriage and the other spouse will keep other assets such as the house or an investment account. As part of the agreement between the divorcing couple, interests in retirement plans owned or distributed are waived. That is to say, that after the divorce, neither spouse will have any interest in the other’s retirement plans other than provided in the marital settlement agreement.
After the divorce, it is important for participants in retirement plans to check the beneficiary designations on their retirement plan assets to determine that such designations continue to meet their needs and intentions. Even though there is a waiver of the benefits in the divorce, at death, the beneficiary designation will control. Therefore, at death, the person named as beneficiary of the retirement plan benefits will receive the benefits even if that person is a former spouse who waived any rights to such benefits. In other words, the administrator of the pension plan must pay the benefits to the person named in writing by the plan participant. This is the 2009 holding of the United States Supreme Court in Kennedy versus DuPont Savings and Investment Plan.
Participants in retirement plans, pension plans, 401 (k) plans, etc. should check the beneficiary designations submitted to the retirement plan administrator on a regular basis to make sure that the person named is the intended recipient of the retirement benefits on death.
Contact Anthony J. Vetrano for a consultation on any concerns you have about retirement benefits in your divorce.