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Wednesday, April 13, 2005

All assets are not created equal.

The Dallas Morning News Service published an article Monday about the difficulty of valuing retirement benefits during divorce negotiations. (Of course the issue is just as important when assets are divided by the court.) The article points to the recent run of corporate collapses and to the pension fund crisis to illustrate the point that current assets and anticipate benefits should be valued very differently.

What solutions does the article suggest? Option 1: give the uncertain assets to the other spouse. (Hard to argue with that suggestion.) Option 2: spread the risk.

The trick is that spreading the risk could require use of a "qualified domestic relations order," which gives one spouse rights in the other's retirement benefits. QDROs are based primarily on federal law, and a "valid QDRO must meet the comprehensive requirements of at least three federal acts, as amended: the Internal Revenue Code, the Employee Retirement Income Security Act of 1974, and the Retirement Equity Act of 1984." Jordan v. Jordan, 147 S.W.3d 255, 260 (Tenn. Ct. App. 2004).

For a helpful introduction to the subject of QDROs and related issues, take a look at the ABA publication Sizing Up the Pension Pot.

Practice Tip -- QDROs can be used to enforce judgments for alimony or child support arrearage.

Other online resources:
Good advice from Alabama lawyer Lee Borden
Guidance on drafting QDROs from the U.S. Department of Labor
Lots of information from Pennsylvania lawyer Mark L. Silow