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Retirement Planning > Retirement Investing

When Clients Divorce: Avoiding the Retirement Income Trap

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Even when everything goes according to plan, clients can find retirement income planning to be filled with complications and uncertainties—which are only magnified when the issue of divorce is thrown into the mix. Under these circumstances, the presence of a qualified domestic relations order (QDRO) is often necessary in order to divide up qualified retirement plan assets. 

Unfortunately, absent careful planning, this area is one in which additional unanticipated complications can easily arise. A recent case has highlighted the need for a carefully drafted QDRO in order to avoid the potentially significant loss of retirement income that can result from one particular complication—the unforeseen death of the non-participant spouse prior to the participant spouse’s retirement.

Cingrani: The Facts of the Case

In the Cingrani case, a QDRO was issued when two spouses divorced. It granted a 50% interest in a plan participant’s vested pension interests to his former spouse. At the time, the participant had yet to retire, so that the defined benefit plan had not begun making his pension payments. Before the participant retired, however, his former spouse died having never received any benefits under the QDRO.

Unfortunately, the QDRO did not contain a provision addressing the consequences of a situation where the non-plan participant predeceases the plan participant before benefit payments commence. Because of this, when the plan participant eventually retired, the plan was only willing to pay 50% of his pension, arguing that the remaining funds reverted to the plan upon the non-plan participant’s death. The plan further argued that reversion to the plan is the default rule that applies when a QDRO is silent with respect to the issue.

The plan participant appealed the decision and eventually obtained an amended QDRO providing that if the non-participant spouse predeceased him, her portion of the benefit would revert to the participant spouse. The plan refused to honor the amended QDRO, and the plan participant challenged that decision in court.

Fortunately for him, the court agreed and found that the plan participant was entitled to his full pension benefit. In so holding, the court found that the amended QDRO was valid, but also found that the non-participant spouse’s benefit reverted to the plan participant upon her death.

Generally, a QDRO may not require that the plan provide any form of benefit not otherwise provided under the plan and may not require that the plan provide increased benefits. In this case, the court found that the amended QDRO was sufficient to override the terms of the plan because it did not increase the cost of the pension in general (among other requirements). 

Further, the court found that when a QDRO is silent and a beneficiary dies prior to his or her benefit’s vesting, there is no benefit left to the fund (as opposed to a situation in which the benefit had vested).

Drafting the QDRO

In this case, the uncertainty and expense of litigation could have been avoided if this issue had been addressed by the QDRO. The non-plan participant spouse should similarly be concerned and attempt to negotiate a provision whereby he or she remains entitled to receive his or her portion of the retirement funds regardless of whether the participant spouse dies first.


While a divorce and resulting QDRO may not be a part of a client’s ideal plan, once the QDRO becomes necessary to divide retirement income, proper planning is essential to ensure that the client doesn’t run into unpleasant surprises down the road.

Originally published on Tax Facts Onlinethe premier resource providing practical, actionable and affordable coverage of the taxation of insurance, employee benefits, small business and individuals.    

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