When a Texas couple is nearing the end of their marriage, both spouses can sometimes lose focus on the full range of things that need to be accomplished. The process of negotiating a complex property division settlement can be draining, and once it is complete some spouses simply check out. It is imperative to understand that the manner in which various property division transactions are handled can be just as important as the negotiation itself.
An example is found in the distribution of 401(k) plan assets. Most people are aware that the division of those assets is outlined in a document known as a qualified domestic relations order, or QDRO. This is the paperwork that states what portion of a 401(k) is to be distributed to which party. In some cases, the cost of having a QDRO prepared can be a shock.
Some plans will not charge a fee for this service, but others look at the QDRO as an opportunity to increase profits. Plan administrators are aware that individuals who need a QDRO are already in the middle of a busy and taxing legal process. They may not notice the additional $300 to $1,200 that is charged to prepare the document.
Texas spouses who are preparing to divorce should take the time to research the fees associated with dividing their 401(k) as well as any other asset type. In some cases, it may make more sense to seek other assets instead of dividing a retirement account. It is also sometimes possible to minimize these types of fees by ensuring that the QDRO is initiated using the plan administrator's website tool. Even in the case of a complex property division, these types of fees and costs quickly add up, and should be avoided whenever possible.
Source: Bloomberg, "The Divorce Penalty: This 401(k) Fee Can Add Insult to Injury", Suzanne Woolley, Jan. 23, 2017