Splitting a 401(k) or Pension in a Tennessee Divorce

From The Mid-South Divorce Guide, chapters 15 through 20, by
William W. Jones IV, a Memphis family law attorney and Rule 31 Listed
Family Mediator licensed in Tennessee and Mississippi. This guide covers
Shelby, Tipton and Fayette Counties in Tennessee and DeSoto, Tate and
Tunica Counties in Mississippi.

Questions this page answers

• How is a 401k divided in a divorce?
• What is a QDRO?
• Do I lose health insurance after a divorce?
• How is a pension split in a Tennessee divorce?

Retirement, Pensions, and
QDROs

People will argue about the house for four months and sign off on the
retirement accounts in four minutes. That is usually backwards. The
house comes with a mortgage against it and a market that sets its price.
The 401(k) is a number sitting on a statement, and that number is
frequently the biggest one in the case.

What is divisible

Vested and unvested pension, retirement, and stock option benefits
that accrued during the marriage are marital property
under Tennessee Code Annotated section 36-4-121. The portion earned
before the marriage is generally separate.

So a pension somebody started at twenty-two who married at thirty and
divorced at fifty has a marital portion covering twenty years of a
twenty-eight year career. Figuring out that fraction is the work.

Not all accounts are the
same

A dollar in a Roth IRA is not a dollar in a traditional 401(k). The
traditional account has taxes owed on it that have not been paid yet. If
you split accounts by face value without accounting for the tax
character, one of you is getting a worse deal than the paperwork
says.

Same problem comparing retirement money to house equity or to cash.
Ask your lawyer to look at after-tax value, not just the statement
balance.

QDROs

To divide most employer retirement plans, a separate court order is
required. It is called a Qualified Domestic Relations Order, everybody
calls it a QDRO, and it
is drafted separately from the decree and sent to the plan administrator
for approval.

Three things about QDROs.

They cost extra. Usually a few hundred to a couple
thousand dollars, often to a specialist who does nothing but this.

They take time. Drafting, approval by the plan
administrator, entry by the court, then implementation by the plan.
Months.

They get forgotten, and that is a disaster. A
divorce finalizes, everybody moves on, and nobody sends the QDRO. Years
later the participant retires, remarries, or dies, and the ex-spouse
discovers the money is gone or the survivor benefit went to somebody
else. This is the single most common expensive mistake in the whole
post-divorce world.

If your case involves retirement division, put it in writing who is
responsible for the QDRO, by when, and confirm in writing when it is
done. Then confirm with the plan administrator that they have it. Do not
assume.

Government plans, military retirement, and federal plans have their
own rules and their own forms. Military retirement in particular has
federal rules about how long you were married relative to the service
member’s years of service. If that is your situation, say so at the
first meeting.

Survivor benefits

A pension has a survivor benefit, and whether you get one changes the
value of your award enormously. If you are receiving a share of a
pension, ask specifically about survivor benefits. Do not let this be an
afterthought.

Social Security

Not divisible in a divorce, but worth knowing. If you were married at
least ten years and meet the other requirements, you may be able to
claim benefits based on your former spouse’s record. That is a Social
Security Administration question rather than a court question, but the
ten year mark is worth knowing about before you finalize a divorce at
nine years and eight months.

Health Insurance

Health insurance ends at divorce, and this is the item that
blindsides people most often.

While the case is pending, the automatic injunction in Chapter 6 prohibits your
spouse from dropping you from coverage. That protection ends when the
divorce becomes final.

COBRA

Under federal law, divorce is a qualifying event that entitles a
former spouse to continued coverage under the employee spouse’s group
health plan, generally for up to thirty-six months, if the employer is
covered by COBRA. Very
small employers are exempt, and church plans have their own rules.

Two hard requirements.

Notice. The qualified beneficiary or the plan
participant generally must notify the plan administrator of the divorce
within sixty days of the divorce. Miss that window and the right can be
lost. Calendar it. Do not assume your ex will handle it, and do not
assume the employer will notice.

Cost. COBRA is not cheap. You pay the full premium,
both the employee and employer share, plus an administrative fee of up
to two percent. The number that used to come out of a paycheck at a
hundred and forty dollars can be seven hundred dollars a month on COBRA.
Budget for it before you agree to a support number, not after.

The alternatives

The health insurance marketplace treats divorce as a qualifying life
event opening a special enrollment period. Depending on your
post-divorce income, a marketplace plan with a subsidy may cost
substantially less than COBRA. Run both numbers.

Your own employer’s plan, if you have one, may allow enrollment as a
result of the qualifying event.

Medicaid or TennCare may be available depending on income.

The children

Somebody has to insure the children, and the cost of the children’s
portion of the premium is a direct add-on to the child support
calculation. It goes on the worksheet. See Chapter
23.

Get the details into the parenting plan. Who carries it, who pays the
premium, how uninsured medical expenses get divided, how reimbursement
requests get made and within what deadline, and who provides insurance
cards to whom. The vague provision that says the parties shall divide
uncovered medical expenses is a future fight. The specific provision
that says receipts must be submitted within thirty days and reimbursed
within thirty days after that is not.

Life insurance

If you are receiving alimony or child support, that income stream
dies with the payor. Consider requiring life insurance securing the
obligation, with you named as beneficiary or as trustee for the
children, and with proof of coverage provided annually. This is
standard, it is reasonable, and it is frequently forgotten.

Download the whole guide. All 35 chapters plus four blank client forms, complimentary, no email required. Download The Mid-South Divorce Guide (PDF)

Questions about your own situation? The Jones Law Firm, 5100 Poplar Ave, Suite 708, Memphis, TN 38137. Call (901) 761-5353.