{3:00 minutes to read}  A while ago, The Huffington Post featured an article with this headline: “How to make sure your divorce lawyer does not screw up your retirement benefits.”

That surely should have gotten a little more attention than it did. One of the key points author Emily W. McBurney, an attorney from Atlanta, made is that certain types of retirement plans do not accept court orders. They are officially not “qualified” plans, and as a result, they are not required to accept the usual QDRO. It turns out that a lot of the plans that are not qualified and do not accept court orders are designed specifically for the top high-income executives.

Aside from the often mentioned golden parachute plan, other types of plans are available for high-income employees:

  • supplemental executive retirement plans
  • certain types of deferred compensation plans
  • excess benefit plans
  • split-dollar insurance plans
  • executive bonus plans

The list is possibly even longer. There is also a group of employee benefits, particularly stock options and awards of restricted stock, that are likewise not subject to a court order for division. It is also important to note that most church-sponsored retirement plans are not subject to being divided by court order.

Of course, there are exceptions because some of the plans have opted to accept court orders. For example, Hewlett Packard permits QDROs on their excess benefit retirement plan. 

The difficulty for everyone involved in working with a divorcing high-income couple is to ferret out the information about these types of plans. It is not uncommon for the employee to be aware that there are a lot of extras, but they often don’t know the details. It is even less likely that their spouse knows the details, or what questions to ask.

For the average person, this means that direct contact with the employer would be the best way to find out exactly what there is. But, even after you know what there is, you arrive at the problem of how to handle it as part of the divorce when it’s not divisible pursuant to a court order.

All of these high-income plans require extra work, and careful planning, to be sure that they are properly taken into account. The best way is to attempt to work some kind of trade-off for something that is easily divisible, or subject to court order, and allow the employed spouse to keep these types of benefits (benefits that cannot be easily divided).

The other option is to have the employed spouse agree to make payments directly to the other spouse when these benefits are received. One possibility in that area is to make the payment a form of maintenance or alimony, which may then be subject to a court order if the employed spouse violates the agreement.

All of these types of plans require a little more digging and a little more attention than usual, but the payoff is clear in that it will avoid losing valuable benefits as part of the divorce.

Steven L. Abel, Esq.
101 South Broadway
Nyack, NY 10960
(P) 845-638-4666
(E) [email protected]