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ATTORNEY MALPRACTICE - DANGERS OF SAMPLE QDROs
Using sample QDROs without extensive modifications has always been dangerous for practitioners. Due to widespread QDRO litigation, the family law attorney is in danger of malpractice unless all QDRO matters are addressed before the parties go to judgment. The only way to address all QDRO matters is to include language in the parties’ settlement or judgment AND draft a comprehensive QDRO (best when entered WITH the judgment).
THE SETTLEMENT OR JUDGMENT LANGUAGE should address these issues or your client is at risk for adverse consequences for same (Sample QDROs don’t contain these items):
1. ensure award includes vested and non-vested portions
2. ensure award includes earnings, COLAs, subsidies, supplements, and temporary benefits
3. order participant to refrain from taking distributions, loans, refunds and settlements
4. declare plan loans and attribute to proper party
5. define award using proper coverture (for inflation protection)
6. award death benefits and designate survivorship under ERISA
7. provide a release for full disclosure
8. extend client’s "insurable interest" for life insurance
9. leave estate open if the participant doesn't cooperate to ensure death protection
THE QDRO must include the statutory 11 requirements AND should clarify all of the above PLUS the following (Sample QDROs don’t contain these items):
a. extend to predecessor and successor employers and plans
b. clarify whether loan balances reduce award
c. include contributions not allocated until year end
d. transfer cost basis for after tax contributions
e. define how earnings are calculated
f. address fund allocation and direct liquidation or “in-kind” transfers
g. clarify proper coverture (for inflation protection)
h. clarify death benefits and survivorship
i. direct that the transfer will take place as soon as possible
j. direct payments be recalculated using the life expectancy of the receiving party
k. prevent conversion of benefits to a non-transferrable disability benefit
l. request segregated account
m. grant investment direction rights
n. have benefits transfer to spouse’s beneficiary(s) or estate upon death
Please pass this on to all family law practitioners.
