Does an ex-spouse lose his/her pension benefits if the plan cannot pay according to the court order?

Let's say the court has ordered that a QDRO should be drafted to give the ex-spouse half of the marital portion of the pension as a lump sum. After the divorce is final, the ex-spouse discovers that the plan doesn't pay lump sums. Does this mean that the ex-spouse loses his or her benefits? If so, how do you protect your clients from this sort of issue?

By Carolyn Grimes
November 11, 2016

Well, this can happen. Let's take one example where you have a property settlement agreement and you've drafted it saying that your client should get the lump sum. You didn't check to make sure whether or not the lump sum could be gotten, or you were given the information that it could have and that turns out to be erroneous. In the drafting, the way you protect your client is to provide an alternative.

If the plan does not allow lump sum, generally the alternative is the payments that the plan does allow. A QDRO can't be in effect to order the plan to pay benefits other than the way the plan is set up to pay benefits. You can't force them to give a lump sum. If you're going to take an unusual distribution, and a lump sum is pretty unusual, always provide an alternative in your drafting.

The other example is, let's say the court has ordered a lump sum. There is no agreement. You didn't have any way to protect your client in advance. The court had then ordered something that can't be done because the plan says, “No, I won't pay it that way.” In Virginia, what you would do is go back to the judge and say, “Your honor, we need to modify the payment terms of your order,” because here you can't modify a final decree once it's been entered but you can address issues and enforcement. Whether or not you can be protected in that way depends on how your state law handles those types of issues.

That they've ordered of benefits that can't be paid in the way it is to be paid. It's a federal law, so the law that the plan is not allowed to pay benefits in a way that aren't in its plan trumps a state order. The remedy in the state court is going to vary by state. What probably most practitioners should do if a court is ordering a lump sum is ask the court at the time that it's being ordered, that if the plan doesn't honor the lump sum, an alternate payment is put into effect then.


Carolyn Grimes is a family lawyer at the law firm of Wade Grimes Friedman Sutter & Leischner PLLC in Alexandria, Virginia. To learn more about Grimes and her firm, visit www.oldtownlawyers.com.

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November 11, 2016
Categories:  FAQs

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