Dividing retirement plans is one of the more troublesome issues the court faces today. Simply put, the party who owns the retirement account feels like they earned it and are not entitled to share it.
On the other hand, the other spouse believes they are entitled to such funds due to the contributions they made to the household during the marriage. The following example demonstrates how a retirement plan can be subject to division.
Luke started contributing to a 401(k) plan offered by his employer in 2000. Also in 2000, Luke married Sarah. During the marriage Luke continued to contribute to his 401(k) plan while Sarah was a stay at home mom. In 2012, the couple divorced. In the hypothetical mentioned above, Sarah would be entitled to a portion of the 401(k) plan.
In the case of Hudson v. Hudson, which arises out of Walker County, Alabama, the court ordered the retirement plan to be subject to division.
Here, the wife filed for divorce in 2004. In December 2010, six years after the commencement of the divorce proceeding, the parties reached a settlement that was recited into the record.
The settlement stated that the wife would receive one-half of the husband’s retirement funds in a thrift savings plan and also half of the husband’s federal retirement funds. However, the trial court did not immediately enter a divorce judgment incorporating the parties’ agreement.
In April 2013, two years after the divorce settlement was reached, the wife filed a motion to compel the husband to give the wife her share of the money that was held in his thrift savings plan.
Specifically, the wife alleged that the husband had withdrawn over 93% of the money in the thrift savings plan and had violated the divorce agreement. However, the settlement was still not incorporated into the divorce judgment, even though it had been two years since the settlement was reached, and the motion was never ruled on.
Finally, the trial court entered a judgment of divorce on May 22, 2015 that retained language that was identical to the language in the divorce agreement regarding the division of the retirement funds. On June 18, 2015, the wife filed a motion to alter, amend, or vacate, and she requested that the trial court issue a Qualified Domestic Relations Order (“QDRO”) in order for her to receive her share of the money from the husband’s thrift savings account and the federal retirement account.
A QDRO is a judicial order that is entered as part of a property division in a divorce proceeding. A QDRO recognizes joint marital ownership interest and awards the ex-spouse legal rights to collect money. By the time the wife requested the QDRO she asserted that the husband had withdrawn all the money from the thrift savings plan and that the husband had retired and began withdrawing income from his federal retirement system. The trial court rejected the wife’s motion and denied the wife’s request for a QDRO. Accordingly, the wife appealed.
On appeal, the wife asserted that the trial court erred in refusing to enter the requested QDRO. The Alabama Court of Civil Appeals agreed with the wife. The appellate court found that wife is entitled to the entry of the QDRO in order to facilitate the transfer of money from the husband’s account. Specifically, the appellate court found that the parties had agreed that the wife was to have one-half of the husband’s retirement plans and that the trial court awarded the wife this property in the divorce judgment.
QDROs are not always a negative thing to encounter in a divorce. For example, a QDRO allows funds in a retirement plan to be distributed without obtaining penalties. Many ex-spouses make the mistake of assuming that a divorce settlement will protect their portion of the retirement funds they are entitled to; however, as the above case exemplifies, that is not always true. If you are seeking a divorce or currently in the middle of divorce proceedings, secure counsel that will work diligently to ensure your interest and future are adequately protected.
Contact Divorce attorney Joseph A. Ingram at (205) 335-2640.