Retirement Plan.jpgAfter 36 years of family law practice, I pride myself on having a good idea of what I don’t know.

The good news is that I can reach out for the help needed to make sure the bases are covered when drafting a divorce settlement agreement.  Matrimonial litigation has spawned a host of forensic specialities eager to offer proof on issues and to implement settlements and awards.  They’re also there to assist a settlement.

Consider pensions.  There are plans covered by the Employee Retirement Income Security Act (ERISA), a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry. There are also private plans which are not covered by ERISA, military and other governmental plans, etc.

Generally, pension rights or benefits accumulated during a marriage are to be divided on divorce, whether or not the pension is in “pay status.”  However, unlike dividing a bank account, splitting one spouse’s retirement benefits is not as simple as writing a check.  A Domestic Relations Order (DRO) or a Qualified Domestic Relations Order (QDRO) is necessary to effectively transfer rights to the employee’s spouse.  Such an Order may also be used to divide I.R.A.s, 401(k)s, and other assets without triggering a taxable event.  Without such an Order, the “owner” might be exposed an income tax liability were the plan to be accessed to get the money to pay the spouse.

Pension plans carry benefits beyond the monthly payment after retirement.  There may be health and/or death benefits.  Elections may be allowed which significantly effect available benefits. May a spouse collect before the employee retires?  May a joint survivorship option be pursued? Keeping track of what those benefits may be for any particular plan and how to divide them is a specialty unto itself.

Consider the March 15, 2011 decision of the Second Department in Coulon v. Coulon. In that case, the parties’ settlement provided for the wife to receive a share of the husband’s pension. However, the stipulation was silent with regard to the plan’s death benefits.  The wife was not, by the settlement agreement, entitled to be designated as a surviving spouse under the pre-retirement and post-retirement survivor annuity provisions of the plan.  The court held the wife was not entitled to the any portion of the plan’s death benefits.

A Qualified Domestic Relations Order . . . entered pursuant to a stipulation of settlement ‘can convey only those rights to which the parties stipulated as a basis for the judgment’. . . . Thus, a court cannot issue a QDRO more expansive or ‘encompassing rights not provided in the underlying stipulation.’

When drafting settlement agreements, I often place a call to Bill Burns of Lexington Pension Consultants, Inc. Since I will probably use Lexington after the agreement is signed to draft the Plan and arrange for its approval by the Plan Administrator, on occasion I will call Lexington to make sure that I am made aware of the plan options in advance of drafting the settlement agreement.  I may have Lexington review my proposed agreement provision.  Lexington, itself, markets its service of providing the specific information needed to structure a settlement that addresses all pension/retirement assets, while assuring that the terms of the agreement will conform to the rules of the particular retirement plan.  There certainly are other specialists, but I have worked with Lexington for years; and if it ain’t broke, I won’t fix it.

Making use of the forensic specialists to craft the setllement agreement is cost efficient for the client and better assures that disputes will be avoided in the future.