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Dividing 401(k) plans during a divorce

The number of divorces involving older couples in Virginia and around the country has soared in recent years, and deciding how retirement plans should be divided is often a contentious issue in these cases. Many couples place the bulk of their retirement savings into either third-party sponsored or employer-provided 401(k) plans, but transferring assets out of these accounts as part of a property division settlement or order often requires a fee to be paid for what is called a qualified domestic relations order.

QDROs may be incorporated into the costs of employer-based plans and spread across all of the plan participants. However, when 401(k) plans are provided by a third party, such as an investment group or bank, a fee must usually be paid. These companies routinely charge as much as $1,000 or more for a QDRO, but they may be walking a fine line. This is because plan sponsors have a fiduciary duty to negotiate for lower fees whenever possible.

Unexpected costs rarely go down well during divorce settlement negotiations, but reading the fine print of 401(k) plans can sometimes be worthwhile. One of the nation's largest plan sponsors charges a modest $300 fee for a QDRO, but this figure increases to $1,200 or $1,800 when a specific company-provided form is not used or a tracking number generated by the company website is missing. Divorcing spouses should also bear in mind that plan sponsors have no incentive to bend these rules or negotiate over their fee schedules.

While experienced family law attorneys may not be able to waive QDRO fees, they could prevent unnecessary delays and additional costs by drafting the paperwork involved properly. The sponsors of 401(k) plans often have very rigid rules dealing with the format and language of QDRO requests, and even minor errors could lead to documentation being held up or rejected.

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