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How QDROs factor into the division of retirement assets - III

In today's post, we'll conclude our ongoing discussion of qualified domestic relations orders, meaning the legally binding documents establishing the right of a former spouse -- referred to as the "alternate payee" -- to receive their share of ERISA-qualified retirement assets.  

In particular, we'll spend some time answering one of the more common questions to arise in the context of QDROs: What happens in the event of either ex-spouse's untimely passing?

The answer to this question depends largely upon whether you are dealing with a defined benefits plan, meaning those that promise to pay participants a set monthly benefit upon retirement or, a defined contribution plan, meaning one in which the employee and/or the employer make regular contributions to an employee's investment account.

In simpler terms, think of a pension versus a 401(k).

Defined benefit plans

In general, experts indicate that if the alternate payee passes away prior to receiving anything called for under the plan and via the QDRO, their intended benefit simply reverts to the plan participant (i.e., the former spouse's).

Conversely, they indicate that if the plan participant passes away before any benefits are paid to the alternate payee, the QDRO's survivorship protections -- which should be included -- would take effect and the intended benefits still paid accordingly.

Finally, in the event the plan participant dies after benefits to the alternate payee have already begun, they state that it should have no impact on the terms of the QDRO or the remaining benefits to be paid.

Defined contribution plans

In general, experts indicate that the QDRO should perhaps be drafted in such a manner to ensure that in the event of the plan participant's demise prior to the transfer of all agreed upon benefits, the alternate payee will be treated as the surviving spouse (up to the predetermined amount).

As far as the premature death of the alternate payee and any unpaid benefits are concerned, experts suggest that most QDROs should be drafted with provisions calling for this remaining benefits to be distributed among named heirs.

As we've demonstrated over the last few posts, this is an extremely complex and extremely important legal issue requiring the utmost care and attention to detail. As such, anyone with questions about the division of retirement assets -- or property division in general -- should strongly consider speaking with an experienced legal professional.

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