Know Your Options in Divorce
By Matt Carey
Divorce is often traumatic, with a large emotional impact on all parties. And the financial ramifications of dissolving a marriage can be no less devastating. I’ve found that many put the financial considerations last on their list. It’s very easy to want to “get it over with” but many have regrets later. That’s why it is important to bring on professionals who specialize in financially equitable divorce settlements early in the process, to make divorce easier. It increases the probability of a settlement that truly addresses your long-term financial needs.
For many, an attorney is the first — and sometimes only — professional they contact. While the attorney is a specialist in divorce law and an invaluable source of legal counsel, they are typically not financial experts.
Why a CDFA?
I have chosen to help my clients through the CDFA (Certified Divorce Financial Analyst) course of study. A CDFA professional helps clients and their lawyers understand how the financial decisions made today will impact the future; for example, how to split a retirement plan and who gets to keep the house. I help clients make financial sense of proposals, providing data that shows the financial effect far into the future of any given divorce settlement. Many don’t fully understand the long-term tax implications of settlements, or a lawyer doesn’t have time to analyze pension payouts or future earnings capabilities. The question of who gets the house is fraught with emotion, and sometimes people can make a choice that is not right for them.
What’s a QDRO?
Retirement benefits in a divorce are especially critical for women who may have little savings of their own. Under federal law, work retirement plans generally can’t be assigned, but the important exception to this rule is for “qualified domestic relations orders,” commonly known as QDROs. In a divorce, you can get a state court order awarding you all or part of a spouse’s retirement plan, and it becomes your own retirement plan. The plan is required to follow the terms of any order that meets federal QDRO requirements.
For example, you could be awarded part of your spouse’s 401(k) plan benefit as of a certain date or part of your spouse’s pension. But there are several ways to actually divide those benefits, so it’s very important to analyze all options when your attorney is negotiating and drafting QDROs — especially for defined benefit plans. In defined benefit plans, a QDRO may need to address survivor benefits, benefits earned after the divorce, plan subsidies, COLAs, and other complex issues. For example, a QDRO may treat you as the surviving spouse even if your spouse subsequently remarries. The key takeaway here is that these rules exist for your benefit.
Divorce is never easy. But knowing your options from the beginning, before irrevocable decisions are made, can ease the burden.