Retirement - You Gotta Share It!

You slave away from 8-5 daily, almost 52 weeks a year at your job.  You put up with your coworkers, boss and the fact that the maintenance staff never seems to empty your trash can and vacuums around all the crumbs you left on the floor.  The only good thing your job has going for it is a great pension and 401k plan (although it’s probably one or the other in today’s economy), and you can’t wait to be able to sit back, relax and collect all that money each month.

Because your wife never seems to pick up after you either, you decide that it is time to file for a divorce – you want to live out your glory years on a beach with some young babe, and having a wife would foil those plans.  But when you walk into your local divorce attorney’s office for a consult, he says something that stops you dead in the middle of that daydream – your wife gets part of your retirement?!?  She has her own job, she has her own retirement, and she didn’t put in all that time at your employer!

Here’s the kicker – per MCL 552.18, “any rights in and to vested pension, annuity, or retirement benefits, or accumulated contributions in any pension, annuity, or retirement system, payable to or on behalf of a party on account of service credit accrued by the party during marriage shall be considered part of the marital estate subject to award by the court.”  And, any rights in an unvested retirement plan where you accrued those benefits during the marriage may be subject to division as well. 

The good news is, if your retirement is up for grabs, so is hers.  Typically, barring any premarital amounts in the retirement plan, each spouse is entitled to one-half of the other’s retirement benefits that were accumulated during the marriage (date of marriage to date of divorce).  If you worked at your employer’s prior to the blessed wedding, you most likely get to keep those funds and you’ll need to find out exactly what you had in your 401k or other plan at the date of marriage (or as close to it as the plan administrator can get) so that the premarital amount can be excluded.  Anything you earn after the divorce is yours to keep too, but your spouse can sometimes share in things like cost of living increases to the extent of her award.  Technically the courts can divide premarital and post-divorce monies too, but I rarely see this happen.

If the parties both have the same type of plan, it’s easy to divide – you simply take who has the larger amount, subtract the smaller amount, and split the difference.  At times the one spouse’s award can easily be rolled over into the other’s account by filling out paperwork and submitting it to the plan administrator.  In more complex situations, specific formulas are used to divide plans and determine your spouse’s exact monthly benefit.

The court documents used to divide most retirement plans are called a QDRO (Qualified Domestic Relations Order) and an EDRO (Eligible Domestic Relations Order).  Depending on your employer and type of plan, one of these will be used (unless you got lucky and could just roll it over without needing a separate order).  If your attorney is comfortable drafting these documents, he or she may prepare the QDRO or EDRO on his or her own, or if it’s more complex, it may be farmed out to companies that do this as their primary business.  Certain plans are a nightmare to work with and every comma has to be in the right place in order for the plan administrator to approve the order.  When I know that a large headache is in store, I will hire a company to draft the order – there are several well respected companies in Michigan that know the QDRO and EDRO game inside and out.

I like to send in my orders for “pre-approval” by the company first so I know whether or not it will be accepted before I obtain everyone’s signatures and enter it with the court.  If you don’t secure pre-approval, you run the risk of entering it with the court, submitting it to the company, and then being told it’s wrong and won’t be accepted.  At that point you have to draft an amended QDRO or EDRO, secure all the signatures again, enter it with the court again, and hope the company accepts it on the second try.  Getting a yes or no before doing all that work can alleviate a headache in the end, and save your clients money as well.

You and your spouse can agree to keep your own retirement and not share in those benefits, but that doesn’t happen too often – she needs that extra monthly income for fun with her new man too.