Tips on Survivor Benefits under Qualified Domestic Relations Orders

The ex-spouse alternate payee in a Qualified Domestic Relations Order (QDRO) will qualify to receive survivor benefits upon the death of the former spouse only if the QDRO so provides. The former spouse must have been married to the plan participant for at least one year to qualify for survivor benefits, unless the plan provides otherwise.

Internal Revenue Code Sections 401(a)(11) and 417 require that pension plan benefits be paid to the surviving spouse of a plan participant. Internal Revenue Code Section 414(p)(5)(A) states that a former spouse will qualify as a surviving spouse and receive benefits to the extent provided in a QDRO. The actual spouse of the participant at the date of death will not be treated as the surviving spouse with respect to the benefits designated to the former spouse by the QDRO. The actual spouse may be entitled to a good deal of benefits even if there is an alternate payer former spouse. For example, there may be benefits earned by the participant after the divorce, benefits not allocated to the former spouse or benefits under another plan.

In order for the former spouse to receive benefits upon the death of the participant, the drafter of the QDRO must designate the former spouse as a survivor. Otherwise, the former spouse will not receive benefits that were anticipated at the time of the divorce and the drafter of the QDRO may be at the wrong end of a malpractice suit.

A TRUE STORY

A wife and husband were divorced. The divorce agreement required that a QDRO be prepared granting the former wife an interest in the husband’s pension plan. The attorney representing the former wife was responsible for preparing the QDRO. The attorney was busy and in no hurry to prepare the QDRO since the benefits weren’t payable to his client until the husband retired. The husband remarried soon after the divorce and died over a year after remarriage, but before the QDRO was prepared and sent to the plan administrator. The former wife attempted to obtain survivor benefits under her anticipated QDRO. The plan administrator refused the former wife’s request and, since she was not the surviving spouse under a QDRO, all benefits went to the current spouse.

The former wife hired a new attorney who contacted her divorce attorney and requested that he attempt to somehow recover her survivor benefits. Unfortunately, since she was not designated as a survivor in a QDRO, the retirement plan acted properly when it awarded the benefits to the current spouse. To have provided benefits to the former spouse without a survivorship designation in a QDRO would have subjected the plan to possible disqualification as a tax-exempt plan. Matrimonial lawyers need to be cognizant of these pitfalls.