Few Divorcing Couples Know About QDROs

Older couples and women, in particular, are often put at a retirement disadvantage when faced with a divorce, a GAO report finds.

The U.S. Government Accountability Office (GAO) sent a report to the Senate Health, Education, Labor and Pensions (HELP) Committee, “Retirement Security: DOL Could Better Inform Parties About Dividing Savings,” in which it explored how often divorcing parties seek access to their spouse’s retirement savings. The overwhelming result was that very few do.

More than a third of adults 50 and older have been through a divorce. However, according to GAO’s survey of large plan sponsors, few people seek a qualified domestic relations order (QDRO), which gives former spouses the right to see all or a portion of retirement benefits. GAO notes that while there is no national information on QDROs, in the past 10 years, the Pension Benefit Guaranty Corporation (PBGC) administered benefits to 1.6 million participants, but approved a mere 16,000 QDROs.

GAO analyzed other survey data and found that between 2008 and 2016, one-third of those who went through a divorce lost a claim to their prior spouse’s benefits, which the GAO says, can “provide crucial financial security to a former spouse.”

“Many experts stated that some people—especially those with lower incomes—face challenges to successfully navigating the process for obtaining a QDRO, including complexity and cost,” GAO says, noting that there are fees associated with preparing a QDRO and that these fees vary widely.

GAO recommends that the Department of Labor (DOL) find ways to collect information on QDRO-related fees and make information on how to obtain a QDRO widely available to the public.

The GAO says divorce affects women more negatively than men, with women’s household income and assets falling by an average of 41% after divorce. GAO says that roughly 2 million people divorce in the U.S. each year.

In conclusion, the GAO says that “with a substantial increase in the divorce rate among those aged 50 and older and roughly 2 million individuals divorcing in the United States, it is increasingly important that individuals are informed about their ability to seek a portion of their spouse’s retirement  [savings] upon divorce. When divorce occurs at older ages, the implications for the divorcing parties’ financial security are even greater. … In addition, many DROs [domestic relations orders] are not qualified by plans due to missing basic information and other errors—which can further increase the costs to divorcing parties. Further, obtaining the information required to prepare a DRO, and the steps for submitting it to a plan for qualification, can be complicated.”

Indeed, a recent survey by TD Wealth found that divorce among those age 50 and older is on the rise. That same survey also said that older couples who go through a divorce often put their retirement security at risk.

Even if a divorced or widowed woman sought the help of a financial adviser, New York Life Investments found that many of them feel patronized by these advisers.

The Senate HELP Committee first requested this report from the GAO two years ago.