Although in recent decades more and more women have entered the workforce, and the income gap - however slowly - is narrowing, in divorce it remains fairly standard that the wife will receive financial support from the husband, especially in longer marriages. Simply put, many women rely on alimony or spousal support to maintain their independence. And, as noted in The Wall Street Journal, they must be "especially careful" when dividing retirement assets. This is the case whether the wife receives spousal support or alimony from the husband or not, as divorces will always divide among the spouses the marital assets.
It is common for a retirement account or pension plan to comprise a major portion of a couple's net worth. As such, these assets ought to be thoroughly addressed in divorce proceedings. Unfortunately, they are frequently overlooked or mishandled, and divorced women often find themselves on shaky financial ground as they reach retirement age.
Drafting an appropriate QDRO
When dividing assets in divorce, most common retirement accounts - 401(k)s, 403(b)s, pensions, and the like - require a qualified domestic relations order (QDRO). This is a court-issued document that sets out how retirement assets will be divided - that is, how and when the dependent spouse will receive benefits from a given retirement plan. However, the process of establishing a QDRO is often fraught with missteps.
According to an article in Forbes, "Many women - and some attorneys, too! - often make the mistake of assuming their divorce settlement agreement will fully protect their rights to their portion of a husband's retirement account." But "this is usually not the case, and that's why it's critically important to use a properly prepared QDRO."
The QDRO must be specific. It must account for a variety of situations and scenarios. Otherwise, the retirement plan can - and will - refuse to release any funds to the dependent spouse. It is crucial to stipulate:
- When the dependent spouse can begin receiving benefits
- That the dependent spouse is legally named as a retirement plan's beneficiary
- What happens when the plan-owning spouses passes away
- What happens if the plan-owning spouses liquidates the asset
- Who is liable for paying taxes on the funds withdrawn
Don't leave yourself vulnerable
The Wall Street Journal details that the failure to properly address QDROs "leaves women in a particularly vulnerable position, as it is typically the woman who is relying on receiving benefits."
It's clear that the only means to avoid mistakes is to find an attorney with an advanced understanding of such matters, who can analyze spouses' retirement assets and design a QDRO appropriately to ensure one's financial stability.