Common Errors Of Attorneys In Dividing Pensions In Divorce

Use this checklist as a tool to evaluate the competence of your attorney in the retirement division process. If the attorney seems to be unfamiliar with the listed issues or has overlooked critical issues, consider using a pension division consultant to assist your divorce attorney. Failure to properly address some of these issues can mean the loss of tens of thousands of dollars of a valuable marital asset.

1. Not preparing the client for the pension maze during and after the divorce.

2. Waiting too long to involve the pension consultant.

3. Not obtaining necessary information about all retirement plans.

4. Waiting until late in the process to address the retirement division issues.

5. Entering into negotiations on dividing the retirement without fully understanding all features and limitations of the plan, division options, and plan administrative practices.

6. Being too quick to use a valuation and buy-out.

7. Agreeing to trade off interests in retirements (i.e., he keeps his and she keeps hers) without knowing the value of all retirements.

8. Using a model format from the plan or a format from another case without understanding the significance of each provision and who benefits from the chosen methodology.

9. Using language in a separation agreement that is incomplete and/or vague

An agreement involving a defined benefit plan should address:

Amount of alternate payee's interest
Postretirement COLAs
Alternate payee's commencement date
Form of alternate payee's payment
Early retirement subsidies
Preretirement survivorship protection for alternate payee
Tax treatment of payments
Constructive receipt of benefits
QDRO submission requirements
Reservation of jurisdiction
Anti-circumvention language limiting actions of participant

An agreement involving a defined contribution plan should address:

Amount of alternate payee's interest
Plan loans
Delayed plan contributions
Establishment of a separate account for alternate payee
Crediting/debiting of account income/losses
Alternate payee's commencement date
Rights and privileges of alternate payee
Death of alternate payee
Death of participant
Tax treatment of payments
Constructive receipt of benefits
QDRO submission requirements
Reservation of jurisdiction
Anti-circumvention language limiting actions of participant

10. Not understanding post-divorce health benefits for the non-employee.

11. Shifting the burden of preparation of the order to the other party.

12. Waiting too long to prepare the order
Examples of worst case scenarios:

Employee dies before order is signed
Employee retires before order is signed
Employee remarries before order is signed

13. Not determining the employment status of the participant.

14. Making the decision for the client on what the order is to provide.
Examples of issues for client to decide:

What division method is to be used
Pre- and post-retirement survivorship rights
COLAs
Early retirement subsidies
Alternate payee's benefits commencement date
How alternate payee's share is to be calculated (coverture or other approaches)
Actuarial reductions for early commencement of benefits
On whose lifetime are the alternate payee's benefits based
Reversion of interest
Disposition of payout from defined contribution plan

15. Not adequately explaining the terms of the order to the client, and filing requirements of the plan.

16. Not understanding the different division methods that may be available to divide the pension.

17. Using terminology and a methodology appropriate to a defined benefit plan when the plan to be divided in a defined contribution plan, and vice versa.

18. In a defined benefit plan, not understanding the significance of the "value" amount provided by the employer.

19. When the employee has already retired, failure to find out what survivorship option was selected at retirement.

20. In a defined contribution plan, not addressing earnings/losses from the date of division to the date of payout.

21. Not understanding all of the potential components of a defined contribution plan.

For example, a company's defined contribution plan could consist of the following:
Several mutual fund accounts of different risks

Rollover accounts
Pre-tax accounts
After-tax accounts
Company stocks
Cash accounts
Matching employer contributions
Unallocated accounts
Loan repayment accounts

22. In a defined contribution plan with several accounts, not establishing an allocation method.

23. Not adequately planning for what happens if the participant dies before retirement.

24. Not adequately planning for what happens if the alternate payee dies before retirement.

25. Not adequately planning for what happens if the participant dies after retirement.

26. Not adequately planning for what happens if the alternate payee dies after retirement.

27. Not determining if there are any outstanding loans against the plan.

28. Failure to consider a social security offset.

29. Failure to anticipate delayed plan contributions.

30. Failure to take into account the purchase of service credits under another retirement system.

31. Using a QDRO to divide an IRA (26 USC Sec. 408(d)(6), IRS Letter Rulings 8504079 and 8652070)

32. "Dumping" the client without addressing unfinished work.

©2002 Edwin C. Schilling III, JD, CFP, 303-755-5121