The Right Way and the Wrong Way to Divide Retirement Benefits in Divorce

Husband and Wife divorce.

As part of their property division, or equitable distribution, Wife is awarded half of Husband’s 401(k).

Wife chases Husband for her share.

Then Wife chases the administrator of Husband’s 401(k) plan.

All to no avail.

What’s wrong with this picture?

Wife failed to obtain a QDRO, a qualified domestic relations order.

Prepared properly and entered at or before the final judgment of divorce, a QDRO is the key to the kingdom that is the ex’s retirement plan. A key that can be turned without having to tear out your hair or throw yourself on the mercy of your ex.

But there is a price tag associated with this key. Two actually.

The first is for proper preparation, often by an attorney who specializes in nothing but QDRO preparation..

The second is for administration by the ex’s retirement benefits administrator.

These fees may run roughly $1,000 to $2,000. Not a trivial sum.

But the retirement benefit to be shared is likely a substantial sum of money.

And the red tape involved in getting to it without a properly prepared QDRO is … substantial. Very.

Sure, it would be better if QDROs didn’t cost as much as they do.

But paying for them is a lot less expensive than having to go back to court to try to collect by other means.

Read more about QDROs in this Bloomberg Personal Finance article: The Divorce Penalty: This 401(k) Fee Can Add Insult to Injury .