Dividing Retirement Assets: Standard of Care

When looking to divide retirement assets make sure you keep some key things in mind (this is written for the laws of the State of Washington, laws may vary by state):

Is the asset a Defined Contribution Plan or a Defined Benefit Pension Plan? The correct classification needs to be in your Final Order and QDRO (Qualified Domestic Relations Order) for dividing the asset.

If it is a Defined Benefit Pension Plan, you need to consider which accrued benefit you are dividing. Are you dividing the accrued benefit as of the date of divorce or separation, from the date of the employee’s retirement, or some other period of time?

The Washington State Court of Appeals recently issued an unpublished opinion, Venezino v. Chvatal (January 10, 2017), which allowed a legal malpractice claim to move forward on the issue of potential malpractice on behalf of an attorney’s advisement on this very point.

The issue in that matter was whether an attorney breached their standard of care because they did not advise on the time rule for division of a pension plan. Apparently, the attorney only advised on dividing the asset as a fixed percentage from the current date. The court discusses an additional method of dividing retirement accounts: the Bulicek  formulation (the time rule). The attorney in this case apparently had only advised on dividing the asset based on fixed percentages (the “subtraction method“) from when the Decree was entered. The Bulicek formula multiples the non-participant’s percentage share times the plan participant’s final wage. Whereas the subtraction method divides the asset from a certain date (date of decree or separation) on a percentage basis (like 50% to each spouse). In this case, it appears the time rule would have been more beneficial to the party, and that client should have be advised accordingly.

Bottom line, these are not the only two methods for dividing a retirement account. You need to know there are many ways to divide retirement accounts, and if you are an attorney you need to make sure clients are advised on those options.