Question: When my wife and I divorced nearly two years ago, the cash value of my 401k plan was $350,000. Based on my lawyer’s advice, I agreed that my wife would receive a flat $175,000 from my plan at the time we divorced. My lawyer told me that by giving her a specific sum, she would not be entitled to any of the appreciation on her share of my 401k between the time of our agreement and the time the court signed an order transferring the money to her. Although my lawyer assured me it would not take long to get this accomplished, as of today – two years later, the lawyers have not completed the paper work. I have heard every excuse in the book, but my real problem is that with the drop in the stock market, my 401K has lost more than 70 percent of its value. In other words, I don’t have $175,000 to give her. Is there a way to change what I pay her so she can share the losses that took place because of reasons beyond my control?

Answer: We do not believe a court will change what occurred two years ago under these circumstances. And why should she be required to share in your losses? You were both represented by attorneys when you entered into a business deal. You agreed to pay her a specific lump sum so that she would not share in the upside if the stock market went up between the day of your agreement and the day the funds were transferred to her. So, under the terms of the agreement and order you describe, she should not be obligated to share in the losses created by a stock market downturn.

In addition, we cannot fathom why lawyers would wait more than two years after a divorce to prepare a qualified domestic relations order. Had the order been prepared in a timely fashion, your former wife would have received her $175,000, and she would have been responsible for the market risk thereafter. And, had the lawyers prepared the order promptly, the appreciation issue would have been negligible. Although hindsight is 20-20, we believe it was very foolish not to award your former wife half of the fund balance on the date of actual payment. By promising a specific sum, you became her guarantor. Not real smart.

Question: At the time of our divorce, the court ordered that I receive half of my husband’s 401k plan. Is this money subject to the 20% tax withholding rule? In other words, do I get the entire amount to put into my IRA account or do I get 80% from the trustee of his plan after taxes are withheld? Also, I have been told by my bank that I have to wait until I receive the funds from my husband’s plan to open an IRA. How can this be handled? I have been trying to get this question answered, but the lawyers don’t seem to know.

Answer: It is incredulous that lawyers who practice in the matrimonial area do not know that the purpose of a qualified domestic relations order is to allow the tax-free transfer of funds from a qualified plan to an IRA. By preparing an order that complies with the requirements of the trustee of your husband’s plan, your share of those funds can be transferred to your IRA. The order should require that the check be made payable to “XYZ Bank for the benefit of (your name)”. Then, all you have to do is take the check to your bank and deposit it into your IRA account.

SoloFact: After divorce, spouses should make sure to change the beneficiary of their pensions to avoid unintended results. Some courts have ruled that even though a former spouse has signed a general waiver of rights to the pension, if the beneficiary is not changed, the former spouse may still be entitled to the proceeds. Therefore, it is a good idea to 1) specifically identify the pension in the waiver and 2) make sure to change of beneficiary immediately after divorce so it will not be forgotten. And, based on a recent decision of the United States Supreme Court, the beneficiary designations contained on employer-related (ERISA) life insurance and pensions takes precedence over the terms of a divorce agreement or decree.