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As baby boomers settle into retirement, many are finding that a divorce has now become part of the plan. It is now estimated that “gray divorces” or those filing for a divorce after the age of 65, has tripled in number within the past few years. Aside from the challenges of any divorce, a gray divorce presents a new and often costly challenge, the division of marital property such as a pension, Individual Retirement Account (IRA) or a 401(k) plan and the fees associated with the Employee Retirement Income Security Act of 1974.
The division of one of these plans, the 401(k), a qualified profit-sharing plan offered to employees with individual salary-based contributions, usually matched by the host employer, has created a new legal reference now coined by divorce attorneys as a “silent fee."
As the couple’s wealth has increased over the years, the “silent fee” determines the cost of repositioning or division of funds, often leading to increased frustration during the division of property process.
The processing of this fee falls under a qualified domestic relations order (QDRO), which may or may not be built into the contribution plan or is sometimes charged equally to both spouses which can become quite costly.
If the QDRO is to be charged equally to both spouses some third-party administrators can charge anywhere from $300 to $1,200 for initiating the process but may find themselves under the gun for not negotiating the fee. This action may be questioned as it seems to cross the fine line of fiduciary duty to their plan participants.
Although fiduciary duty may be in question, most often QDROs are swept through, a good day for plan administrators but a costly day for the divorcing couple. It has been reported that most often the fee is not challenged as it may prove difficult to question the industry giants on their QDRO pricing often leaving the plan participants feeling trapped.
The other challenge presenting under QDRO relates to the retained divorce attorney. In some instances the retained attorney may not fully understand the negotiation process providing the third-party administrator the opportunity to decline acceptance of a fee reduction request and thus return the request for further evaluation and submission, once again increasing the overall cost to the separating couple in the form of additional attorney fees.
Typically, a reasonable QDRO fee falls into the $500 to $1,000 range but can go as high as a 55 percent increase in transactions fees.
If you are anticipating or currently involved in a gray divorce and have questions regarding the fair and equitable division of a pension or 401(k) plan, contact the experienced Hinsdale divorce attorneys of the Law Office of Martoccio & Martoccio. For 35 years, our law office has been successfully serving clients throughout DuPage, Cook, Kendall and Will Counties by offering a customized approach to quickly and economically achieve the objectives of our clients. Contact us today at 630-920-8855 to schedule your free initial consultation.