The Herald Bulletin

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Columns

November 1, 2013

'Big Joe' Clark: Divorce requires sharp financial planning

Some conversations are easier than others. Divorce is painful for many reasons and the financial implications are serious. Sadly many professionals make mistakes and poor assumptions regarding the division of assets.

Rarely does the U.S. Supreme Court rule unanimously and when they do we as professionals need to pay attention. Remember, under the U.S. tax code, if you receive bad advice from a professional, there may be some relief from penalties but the tax implications are still your responsibility.

Regarding the justices’ latest ruling with regard to divorce, here's the brief scoop. Gary and Patricia Langston married in 1964 but unfortunately divorced 29 years later in 1993.

The divorce decree gave the ex-wife benefits to Gary's pension upon retirement. The pension plan allowed Gary to elect survivor benefits and he was required by the courts to make Patricia the beneficiary.

To enforce this, Patricia was supposed to send a form to the pension plan called a DRO or Domestic Relations Order. The plan would then determine whether or not to enforce the DRO as a Qualified Domestic Relations Order. Either her attorney failed to know that or she simply didn't get around to it and that’s where everything started going south for Patricia.

Before Patricia filed the paperwork with the plan, Gary met Shelly James and they got married. In 2004, 11 years after his divorce from Patricia, Gary retired. Upon retirement he was required to make a benefit election and he chose a 50 percent survivor benefit and made his current wife, Shelly, the beneficiary.

He did not do what was required by the divorce decree and began to receive payments and planned to enjoy a happy retired life. Then he died in October 2005.

In short, after several appeals Patricia was unsuccessful in making a claim on Gary’s pension and Shelly was named as the spouse beneficiary. The ruling may seem tough but it fully exposes the complexity of the Employee Retirement Income Security Act (ERISA) programs, state laws and divorce decree capabilities. Had Patricia acted in a reasonable time frame, she would have been eligible to potentially receive the benefits.

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