Can We Split QDRO Fees Between Participant and Ex-Spouse?

DWC | 08/8/17

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Facts

We have a participant who is going through a divorce and told us that he will be submitting a Qualified Domestic Relations Order to assign a portion of his 401(k) account to his ex-spouse. It is our normal practice (which has been communicated to our participants) to charge the participant’s account for the fees associated with reviewing and approving the order as well as segregating the award for the ex-spouse.

Question

The divorcing participant has asked us to split all of those fees 50/50 between him and his ex-spouse once the account has been divided. I have reviewed the plan document and our QDRO procedure but didn’t see anything addressing this. Is it ok for us to split the fees as the participant requested?

Answer

Although the plan document is usually the best place to start, this particular question is more a matter of what the parties have negotiated. Just using round numbers, assume that your employee agreed to assign $10,000 of his 401(k) account to his ex-spouse via a QDRO. If there is nothing in the order that specifically states she is responsible for some portion of the fee, charging her would have the result of her receiving less than the $10,000 that was negotiated.

If you haven’t received the order, it is a good idea to tell the participant that you cannot split the fee unless the order specifically provides for it. If you’ve already been presented with the QDRO and now the participant is asking for a fee split that isn’t addressed in the order, your best bets are either to process the order as written (without the fee split) or send the order back for renegotiation/modification by the parties.

As a general rule, you always want to interpret the language in a QDRO very literally and not “superimpose” what you think the parties meant, even if one of them told you verbally what he or she wants/prefers/intends. It might seem like relatively small dollars, but given the sensitivity of many divorce situations, that small amount could spark a war between the parties.

For more information on QDROs, please visit our Knowledge Center here.

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Topics: Question of the Week, DWC, Fees, QDRO

The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.