Legal Malpractice QDRO Error

A QDRO, or Qualified Domestic Relations Order, is often an essential part of a divorce settlement usually found in marriages of some duration. These documents recognize the rights that a spouse, child, former spouse, or a dependent has in the other spouse’s retirement benefits such as a 401K or for plans covered by the Employment Retirement Income Security Act (ERISA). 

These plans are typically filed by the ex-spouse with the assistance of an attorney although in a custody matter, the court can issue a QDRO for the dependent. Because these plans can provide vital benefits to the beneficiary or beneficiaries, it is essential that the attorney preparing the QDRO do a competent job or be subject to a possible malpractice claim.

 A QDRO has certain requirements:

  • Include the name and last known mailing address of the plan participant and each payee
  • Name of the plan to which the order refers
  • Percentage of or the actual dollar amount of the benefit
  • Number of payments or time line for which the order will apply

There can be more than one retirement plan in the order. Also, the plan must include benefits that already exist or which are provided through the plan. The attorney drafting the plan must account for the present value of benefits being paid to the beneficiary and the present value of all benefits payable to the plan participant. 

As for taxes, the beneficiary becomes responsible for paying the taxes owed as soon as the distribution is made although she can roll over the assets into another retirement account with the exception being that where the beneficiary is a minor, the taxes are to be paid by the plan participant. 

Many non-working spouses heavily rely on receiving their portion of the pension or other retirement plan of the spouse and who is now facing an uncertain future without the expected funds should their attorney have overlooked or misinterpreted a provision in the plan. In some cases, the victimized individual will have to seek and take low-paying employment just to survive. 

Common Errors in a QDRO

  • Since it is the non-employee spouse who files for a QDRO, it is up to that spouse or the attorney to be sure that the plan or 401K administrator approves and accepts the QDRO and that a judge signs the order. Having the plan administrator review the order before it goes to court is essential to avoid delays and unnecessary legal expenses. 
  • An attorney who does not do his or her due diligence may overlook other available plans to which the client is entitled to such as a health savings account, employee stocks, or deferred compensation plans.
  • Not understanding the type of plan that is to be divided—retirement plans can be contribution plans, defined benefit plans or a hybrid. In a defined benefit plan where the working party earns credits based on compensation earned or years of service, there are no payouts until the working spouse retires. The payee may only get a monthly sum rather than a lump sum. This can affect how negotiations can be strategized. Further, the attorney may not realize that the pension plan allows the working spouse to change the survivor beneficiary, such as to a new spouse, without the non-working spouse’s consent.
  • An attorney may be careless in not advising the client on rollovers or to draft the plan so that the assets are directly transferred to another retirement plan such as an IRA that you can set up for this purpose. You only have 60 days from the date you receive the QDRO assets to deposit the funds in another account or IRA or it is considered taxable income and may be subject to early withdrawal penalty. Also, be sure not to have the ex-spouse pull the cash out and send it directly to the beneficiary.
  • Not being aware that some retirement plans such as supplemental benefits are not subject to division or can be assigned.
  • Not setting a specific date as to when the martial rights to the retirement asset ends. It does not have to be the date of divorce.
  • Ensuring that the assignment of retirement interests complies with federal laws.
  • Not considering whether to give the alternate payee a right to survivor benefits or any other benefits payable under the plan.

Drafting a QDRO is one of the more difficult and complex tasks that a domestic relations attorney can perform. If done incorrectly or without drafting it to include the rights and payments that a client should have received, it can lead to disastrous results.

Often, the consequences of a poorly drafted QDRO are not realized until the benefits are due to be realized. At this point, you should immediately consult with an experienced legal malpractice attorney.  We use an expert in family law on these types of cases.  

Retain a Legal Malpractice Attorney from Burns and Jain

If you feel that your attorney improperly or negligently prepared a QDRO where your expected benefits were unrealized or resulted in payments or penalties that could have been avoided or minimized, then call a legal malpractice attorney from Burns and Jain at (617) 227-7423 for a free consultation about your concerns.

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