When I’m Sixty Four
April 19, 2017
WHEN I’M SIXTY-FOUR . . .
The growing international mobility of families, the increasing value of retirement assets, and the complexity of international divorces, with their competing courts and laws, means difficult pension division cases will surely multiply in coming years. When combined with the already high rate of divorce, the technical rules that govern retirement assets, and the wide variety of different retirement plans available, the result is an abundance of pitfalls, traps, and tripwires for the unwary.
The first problem stems from the many different factual situations that can arise. For example, a couple might have U.S.-based retirement assets but need to divorce in another country. Similarly, a couple might have foreign retirement assets and yet get divorced in the United States. Or maybe both parties have retirement assets from two different countries – for a total of four – and divorce in yet another country. And of course, as everywhere in the law, if it can be imagined, it will happen sooner or later.
A second problem arises because the law that governs whether and how retirement assets can be divided upon divorce may be different from the law that governs the divorce. For example, the type of ERISA-qualified retirement assets widely held in the U.S. (think 401k, profit-sharing, or defined benefit plans) can only be divided at divorce by a special court order called a QDRO. This special court order must be “made pursuant to a State domestic relations law,” where state is defined as one of the 50 United States plus the District of Columbia and certain enumerated territories. In other words, a UK or French or Spanish or Canadian divorce that purports to divide such an asset, even if it includes the proper wording, likely will be rejected by the retirement plan administrator. And of course, this same problem exists in reverse – a U.S. court order that purports to divide a UK (or French or Spanish or Canadian or other country) retirement benefit may be given little or no effect in that country.
Another problem comes from the variety of different retirement benefits available. Just in the U.S.,government sponsored we have the ERISA-qualified plans; IRA’s – simple, SEP, and Roth; federal, state and local government plans; and military retirement plans, not to mention international organization plans, stock option plans, Restricted Stock Units, and other sophisticated private employer plans. And don’t forget social security, annuities, and life insurance. Even the classic retirement plans have different payout options, including return of investment, lump sum payouts, pre-retirement death benefits, and survivor spouse benefits. And each other country has its own cornucopia of retirement benefits, government-sponsoredretirement benefits, typically governed by country specific laws.
Yet another consideration is which court has the power to divide the retirement asset and which country’s law the court will use to make the division, in a divorce where nobody lives anymore in the country where the retirement assets were earned. And the parties might live in different countries from each other, each of which might be able to divorce them.
Then at some point, inevitably, tax issues, currency issues, and bank transfer issues must be considered.
Finally, the situation – and the available options – can be very different depending on whether the divorcing couple can count on cooperation from one another or whether instead every issue will require a fight over what outcome can be forced through the courts.
In case the conclusion is still not obvious, these cases demand a high degree of attention to detail, extensive knowledge of the relevant factors, and often input from competent lawyers in at least two different countries. Creative and unorthodox solutions are the norm, and difficult choices part of the everyday process when international families need to divide fairly valuable retirement assets upon divorce.
If you, or someone you know, has a matter related to this article or any international divorce issues, please call or write Shulman Rogers and mention Hadrian N. Hatfield.
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