What Is A Valuation Date?
Often times, upon completion of the divorce process, a retirement plan (pension/401(k)) needs to be divided. The judgment will award a percentage or specific dollar amount of the plan’s value to the receiving party. The judgment is only one of the documents needed to authorize the division of the pension. The pension plan administrator will usually need a qualified domestic relations order (QDRO) also. A QDRO is a separate legal order, that splits and changes ownership of a retirement plan to give the divorced spouse their share. The QDRO instructs the plan administrator on how to split the plan based on the terms in the divorce judgment. Learn more about QDROs here. Within the QDRO is found a QDRO valuation date. The QDRO valuation date is the date that the plan will be valued to determine the amount of funds to divide. For example, if the order awards 50% of the community interest in XWZ Pension Plan and the valuation date is December 31, 2010, then the balance of funds on that date is what will be divided. In most California cases the QDRO valuation date is the date the parties separate.
Problems With QDRO Valuation Dates
More and more pension plans are transferring to new pension plan administration companies. Currently, Fidelity is the largest third party administrator. So how does this affect the QDRO valuation date? Some of the new administrators, not having past records are unable to determine the value on a date prior to the date they took over the new account. Recently we were preparing a QDRO for a client who was divorced in early 2000. The new pension plan administrator asked for a QDRO valuation date no earlier than January 1, 2005. This is becoming an increasing problem.
Those who wait will most likely be asked by the plan administrator to provide a specific dollar amount to award. Not a problem when the ex-spouses agree to an amount, but a big problem when the parties can’t agree or can’t determine what the value might have been. This can lead to more litigation. You can see how important the valuation date is and why it isn’t a good idea to wait too long before dividing a retirement plan.
Avoid Issues With Valuation Dates
Prepare your QDRO as soon as possible. The judge can sign the QDRO at the same time the divorce judgment is signed. Then submit the QDRO to the plan administrator as soon as possible. Don’t risk losing any or all of your benefits.
The Fine Print
As always, not all pension plans and divorce cases are the same. If you have a question as to what you should or shouldn’t do with regards to retirement account divisions and QDRO valuation dates, contact a qualified attorney.