The Big Issue with QDROs (It's Not What You Think It Is!)

A pension can look “handled” in your divorce judgment and the former  spouse can still get reduced (or zero) benefits. That is the gut punch behind today’s deep dive on QDROs, the qualified domestic relations orders that actually control pension division in divorce. We walk through what a QDRO does, why plan administrators only follow the approved order, and how a delay can undo an otherwise solid settlement. 

That “most important” factor is timing. We explain how QDROs often get treated like leftover paperwork after the judgment, how plans can require multiple revisions, and why no one is automatically tracking the process unless you step in. 

Then we shift to the mailbag: a listener asks what to do when an ex agrees to pay credit card debt but the creditors still come after her, and we talk through enforcement and protecting your credit. 

Subscribe to Divorce Rich, share this with someone navigating divorce financial planning, and leave a review if it helped you take one concrete step toward protecting your financial future.

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Transcript

Welcome And Sponsor Message

SPEAKER_01 0:08

Welcome to the Divorce Rich Podcast. I'm your host, Jackie Ressler. I've been a certified divorce financial analyst for 28 years, helping clients and their attorneys navigate the often complex and confusing financial issues in divorce. If you're in the process of or considering divorce, now is the time for you to take a deep breath and give yourself permission to find clarity on the financial issues you're facing. Rich means many things to many people. I believe the best definition of being rich is someone who has access to many resources. Along with my guests on this podcast, I will be bringing you a wide variety of information so that you can make sound and informed financial decisions for your financial future. Hey, if you're recently divorced or still in the middle of it, you already know life can feel like it's been turned upside down. And let's be honest, the financial part is overwhelming, confusing, and often the last thing that you want to deal with. That's why I want to tell you about the independent wealth management team at the Center for Financial Planning. Their team of certified financial planners specializes in helping people just like you navigate life changes with confidence. Whether it's assessing your new financial circumstances, creating or updating your retirement plan, or helping you adjust to the new normal, they'll work with you to get a clear, customized plan to feel in control and move forward with confidence. So if you're interested in working with a financial planner you can trust to have your best interest in mind, and you're ready to take the next step, visit centerfinplan.com. That's centerfinplan.com and schedule a conversation. Center for Financial Planning.

SPEAKER_02 2:12

Live your plan. Disclosure. Securities offered through Raymond James Financial Services Inc., member FINRA, SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning Inc. is not a registered broker dealer and is independent of Raymond James Financial Services. Center for Financial Planning was a sponsor of the Divorce Rich Podcast. The Center for Financial Planning and Raymond James are not affiliated with or endorsed by the Divorce Rich Podcast.

Shared Benefit One Canoe Explained

Separate Interest Two Canoes Explained

The Biggest Risk Is Timing

Get The QDRO Done Now

Mailbag Setup And Sponsor

SPEAKER_01 2:49

Hi everyone and welcome back to the Divorce Rich Podcast. Today we're going to take a deep dive into pensions and their division in divorce through quadros or qualified domestic relations order is the official term. We call them quadros for short. When pensions get divided in divorce, people usually assume there's a strategic decision that's been made or negotiated between their attorneys, whether or not it should be shared benefit or separate interests, which I'm going to talk about in this episode. But here in Michigan and most likely in most states, that's really not what's happening. Most of the time, the structure of the quadro, what the template is based on, is either based on the attorney's template language that they always use for a case for settlement terms, or the quadro preparer's default approach. I spent years in the quadro drafting world, and I can tell you that the biggest problems that I saw were not about choosing the correct method. The real risk, the one that actually costs people a lot of money, is when the quadro doesn't get done in time or doesn't get done at all. So today I'm going to walk you through pension division, how it actually works in practice, what matters, what usually doesn't matter, and where things tend to go wrong. So stay tuned. So there are two general methods to divide pensions and divorce through a quadro. And every pension plan administrator has to accept both of these methods. Um, one is called the shared benefit method, and the other one is the separate interest method. The shared benefit method is what I like to call the one canoe approach. And it's one canoe because both people are, if you think about it visually, both people are sitting in the same canoe going down the retirement river at the same time. So using the shared benefit or the one canoe method, the um the plann participant is always going to be in the front of the canoe. So let's visualize both people, the planned participant who is the employee, and the non-employee spouse, who we're going to call the alternate payee. They're standing at the dock before retirement and they're standing there together. And the alternate pae is waiting patiently for the participant to jump into the front of the canoe. Now, the alternate pay can't get into the back of the canoe to start getting their payments until the participant jumps into the front. So they're always tied together and the participant is always in control of when the benefits commence. So let's say we have John and Mary, and John is an employee at Ford Motor Company. He still works at Ford and he is eligible for retirement, but he's still working, so he's not going to get any of the pension until certainly he retires. So he eventually decides to retire five years after the divorce, but he still doesn't want to start taking his pension yet. He's going to delay commencement of the pension benefit. And there's Mary standing on the dock, twiddling her thumbs, waiting for him to get in the canoe, because she cannot get any part of that pension benefit if it's the shared benefit method that was used. She can't get any part of it until he jumps into the front of the canoe. So let's say he finally says, okay, I'm ready to start taking my pension. He jumps into the front of the canoe and Mary jumps in behind him. So their benefits are always tied together. If Mary dies before John dies, any benefit amount that she was receiving is going to pop back up to the front of the canoe and he's going to receive that money. It's not going to go back to the pension plan administrator. It's not going to go back to Ford. It's not going to go to anyone else, but it's going to go right back up to the front of the canoe or back to John. So that's a benefit for him. Another thing that's important to keep in mind is if it's the shared benefit method, John has to name Mary as her surviving beneficiary on the portion of the pension that was assigned to her. If the canoe goes down, they both capsize together, and only if a survivor benefit is in place for Mary, will Mary continue to get any part of the pension benefits. So just to recap, the pros and cons of the shared benefit or the one canoe method. One is that if Mary dies before John, her benefit automatically reverts back up to him. The negative for her is that she's got to wait until he jumps into the canoe. They're always going to be tied together. And another negative for John is that he's got to name Mary a surviving spouse on his pension. Whereas if we use the other method, which I'm going to talk about in a minute, that would not be necessary. So here's the other method. It's the two canoe or the separate interest approach. And under the separate interest approach, Mary and John's benefits are separated. And so they're both standing on the dock together before retirement. Mary can jump into her canoe and start taking her payments before John actually retires. So John is still working at Ford. Mary can start accessing her share of the pension benefits, even if he's still working. That's a real benefit to her, that she is in control of when that monthly benefit starts. So once she jumps into her canoe, too, they will actually adjust the payment based on her life expectancy. So that if John dies, she doesn't need survivor benefits in place to protect her interest. They're going to remain payable to her as they are when she jumped into the canoe. Now, the negative for John is if Mary dies before him, the benefit amount that she was getting, it doesn't go back up to the front of the canoe. There's nobody there. She was in her own canoe. It goes right back to Ford Motor Company. So that's a negative for John. So I think we've established that there are key differences between the shared benefit method and the separate interest method. And it is important. For sure, it's important. But what really makes or break the makes or breaks the quadro issue is not whether or not you use the shared benefit or the separate interest method. The real issue is timing, believe it or not. Timing of the entry of the quadro. Generally speaking, the quadro is not drafted until the judgment is final and over. So that's a problem. It's a problem because of the timing. To me, this is a super critical issue. I think that this should be treated like a hot potato that nobody wants to hold on to. And instead, it gets treated like it's just paperwork and not the division of one of the largest assets that the couple usually owns. So it's usually not drafted until after the judgment of divorce is entered. There's no clear assignment of responsibility often. Who is in charge of getting this done and getting this put through? There are often extreme delays in submission to the plan administrator. Multiple revision cycles with plans. Sometimes it's filed with the court and never approved by the plan. The participant retires before the quadro is in place. If the participant dies before entry and approval. And if benefits already start and they're locked in, so that means the person has already commenced their benefits. These are the high impact events that seriously impact the ability of the alternate payee to receive what was intended, if anything at all. I've seen very well-negotiated settlements fall apart because the quadro was treated just like paperwork and not like this critical asset transfer. So here's a typical sequence of what it looks like when the quadros are drafted. So the parties reach a settlement. Let's talk about Mary and John. Mary and John, they went to mediation. They reached a settlement on all of the key terms of their division of their assets, who was going to keep the marital home, how they were going to handle the mortgage, what the parenting schedule would be, child support, spousal support, division of retirement accounts, division of brokerage accounts, how everything was going to be handled. Everything was agreed on. They reached a settlement. And then one of the attorneys is in charge of drafting the final judgment of divorce. Sometimes they have a marital settlement agreement that is entered separately that has terms that really go into a lot of detail that would not be part of the public record, but incorporated by reference into the judgment. John and Mary were tired. The attorneys both told them you need to get the quadro done on John's pension through Ford Motor Company. Well, John and Mary are tired, and they are tired of dealing with everything divorce related. It had been a year and a half and they were done. They just wanted to move on with their life. They said, we'll deal with the quadro later. John is nowhere near retirement. It doesn't matter. So many months go by. It could be years that go by. And then something irreversible happens. John, let's say that he the thought something irreversible is that John retires. Another irreversible event that could occur is that John dies. Yeah, a third irreversible event is that John elected on his own how to commence his pension benefits. And once decide, once he commences the benefit, if there's no quadro in place at that point, he locks in permanently the way that he elected the benefit amount. So the asset is not divided the way that it was supposed to be divided in the agreement. And now we have a big problem. And the problem can be tremendous if the plan participant has died. Sometimes I have seen situations where the alternate payee ended up not getting anything for many years until it was resolved. In certain situations, you can enter an order for a quadro after the person has died, but it doesn't necessarily have to be accepted and it's difficult and it's a mess. And nobody wants to be dealing with that. I cannot tell you how many times we would get phone calls to our firm when I was drafting quadros, or somebody would call up and they would say something terrible happened. And my next question would always be Did the pension participant die? And nine times out of 10, the answer is yes. The pension participant died and they never entered the quadro. They didn't think they needed to do it. They didn't want to pay the money for it at the time to get it done. They were done with dealing with all of the stuff related to the divorce and they just forgot about it. And they figured that it was fine for the judgment to be entered as it was and not have the quadros. So one really important piece of information that I want you to take away from this episode is that the judgment of divorce has absolutely no control over how that pension is divided. The only document that is acceptable is the qualified domestic relations order. Doesn't matter what your judgment of divorce says, you have to have that quadro entered and approved by the plan administrator for the pension plan in order for it to be actually qualified and done. So what should have happened instead? That is what this episode is all about. So what should have happened instead? What I would recommend in every case, every single case, if I had my ideal fantasy of what happens in every case, the quadro should be drafted and entered simultaneously with the judgment of divorce. There shouldn't be any delay at all. Instead, what usually happens is as the back door of the courthouse is hitting the client on the backside or the virtual back door if they don't have to go in person, the attorney might yell out, and by the way, get a quadro. It can't be like that. It needs to be entered as soon as possible because you never know if someone is going to die. They could retire and they could start collecting their pension benefits. And then everything that was agreed to could be blown apart. So it needs to happen at the same time, in my opinion, as the entry of the judgment of divorce. It's really important. Every pension plan, believe it or not, has their own specific plan procedures on what they accept and what they don't accept in terms of language and dividing their orders. Now, every plan has to accept either a shared benefit or a separate interest model. But sometimes we would tell people if they want the Star Spangled Banner in the quadro in order to get it approved, we'll put it in there as long as it doesn't have anything, any negative impact on the alternate payee or the participant. Another really important thing, let's say you're not getting your quadro done concurrently and entering it with the judgment of divorce. It needs to be really clear who's going to draft the orders, who's going to pay for the drafting of the orders, and who's going to handle the entry of the orders into the court, who's going to submit them to the plan, and who's going to track the progress of these. That rarely happens all the way through. I'm not really not blaming attorneys. The attorneys have a very large burden on their plate to handle when the divorce. They a lot of times they're helping with executing a quick claim deed and getting all of the language correct for all of the other provisions. They're not always quadro specialists. And the quadro prepares, it's not their job to track the timing of how long it's taking to get the orders done. So it's simply a situation of there's really nobody in charge. That's why if you are listening to this episode and you are the person who is going to be receiving money from a defined benefit pension plan, you have to be the one in charge of the tracking. You've got to be your own advocate here. You have to be the one to track, or if you have a good financial advisor that you're working with, they will often help you track what is happening with these orders because there isn't anybody else there that's going to do it. And a lot of them get stalled either at the plan administrator. I've had a case right now where there's just mass confusion on the part of the plan administrator. They don't, you know, they already looks like they've released the money, but we can't figure out where the money went. There's just nobody really responsible for following up on these things. So it's not just getting the plans, it's not just getting it through the court and getting the court order signed, the court quadro signed. That's important, but it also has to be approved by a separate entity. That's the plan administrator. So there's all these different moving parts related to the quadro. If the quadro itself has not been approved by the plan, the plan administrator, they have the final say. If it's not been approved by them, it's not a quadro. It's not a qualified domestic relations order. It's only a domestic relations order until the plan qualifies it and says it's qualified. Again, I want to bring this back to the core point of what I want to emphasize with this. Most people don't lose money because they chose the wrong type of pension division, whether that's separate interest or shared benefit. Again, there are definite pros and cons. And I truly believe that every pension being divided should be negotiated. Every pension that is being divided, you should be talking about whether or not it's in your best interest for it to be shared benefit or separate interest, the one canoe or the two canoe approach, because it does make a difference. For a lot of people, it is life-changing to have the correct way for you incorporated. But if you're going through this, don't just ask how it's being divided. Ask whether or not it's actually getting done and who is in charge of tracking it to make sure that it goes all the way through. Thank you for listening. Stay tuned for our mailbag segment, which is up next. And that is sponsored by Dawn, Divorce Attorneys for Women in Michigan. And thank you again for listening today.

SPEAKER_00 19:18

When you're facing divorce, you deserve an advocate who understands what you're going through and who's dedicated to protecting your future. At Dawn, Divorce Attorneys for Women. Our mission is simple: to help women move forward with clarity, confidence, and strong legal guidance. Whether you're just starting the process or feeling overwhelmed by what comes next, our team is here to support you every step of the way. Schedule a free consultation today and learn how we can help you take back control of your life. Visit women's rights.com slash free consultation video to get started.

Credit Card Debt After Divorce

SPEAKER_01 20:07

Today's mailbag segment is sponsored by Dawn, Divorce Attorneys for Women in Michigan. Their contact information will be in the show notes for this episode. So let's dive right into it. Our question this week comes to us from a listener in Wisconsin who wanted to know how to handle credit card debt after the divorce was done. So based on their settlement agreement, their spouse was supposed to pay half of all of the credit card debts. Now, some of those debts were in the name of the listener, and some of them were in the name of her spouse. So what she wants to know is that her ex is not making payments on her debt, and the creditors are coming after her. And she wants to know what she can do about that. This is an important issue in a divorce case. Something that I would definitely caution people about. Your judgment of divorce might specify that you are to split credit card debt or any debt that's in your name and that your spouse is supposed to pay. It could be a car loan, it could be a mortgage, even. The creditor is not going to care what your judgment of divorce says. Your judgment of divorce is not binding on third parties like credit card creditors, lenders for boats, cars, houses. So the language in your settlement agreement is really important. And in order for the creditors are still going to come after you, even if the judgment of divorce says that that debt is supposed to be split. And so you're going to have to take your spouse, unfortunately, back to court to try to enforce that part of your agreement. Instead, what I would highly recommend is that when you're getting divorced, that any of the debt that's in your name already, that you take on the responsibility for paying off that debt. A lot of times that debt can be paid off with marital assets, and that's part of the agreement. Agreement, that's fine as long as you're the one in charge of making sure that gets done. You never want to have your spouse be responsible to pay off debt in your name because of the very situation that's happening to this listener is that now if she's on the hook, the creditor is not going to care. So in order to protect her credit score and to keep her credit intact, this person is going to have to make the payments herself and then take her ex-spouse back to court. And whether or not this is enforceable in the court, the judge can enforce an agreement between the parties, but again, they can't force the other party to make that payment directly to the creditor in a timely fashion. Thanks for listening. Please send in your questions to us at divorcerichpod at gmail.com. Thanks. Thank you so much for taking time out of your day to listen to Divorce Rich Podcast. If you like this podcast, please follow us on Apple or anywhere that you download podcasts and share this link with any friends or family that you think might benefit from this information.