The Hidden Risk in Retirement Settlements

By Denisa Tova-Liebman, MBA, CFP, CDFA, CQS

A retirement settlement values an account as of one date. The plan moves the money on a later date, at a different balance. The difference between those two amounts is gains and losses, and on a meaningful account over a months-long gap it can shift the division by tens of thousands of dollars. This article shows how that risk arises and how to draft settlement language that accounts for it.

What the article covers

The article examines the period between the cutoff date in a settlement, the date as of which the account is valued, and the date the plan actually transfers the alternate payee's share. That gap exists in every case. The order has to be drafted, signed, submitted, reviewed, accepted, and processed. The market does not pause while that happens.

It walks through real scenarios where the gains and losses question was left unaddressed, the plan applied its own default treatment, and one party received an outcome neither side expected. It then sets out a framework for drafting settlement provisions that say what happens to the awarded share during the gap, so the result matches what the parties agreed.

Key takeaways

• The gap between the valuation date and the transfer date is where retirement value quietly shifts. It is rarely the headline number in a negotiation, and it is often the largest unaddressed risk in the agreement.
• When the agreement is silent on gains and losses, the plan applies its default. Defaults differ by plan and by record keeper, and the parties may not learn which one applied until after the money moves.
• For defined contribution accounts, the common explicit choice is pro-rata gains and losses, so the awarded share moves with the market in the same proportion as the rest of the account.
• Pensions raise a different version of the question. The market-balance concept does not apply; the pension issues are cost-of-living and survivor adjustments.

Why it matters for your settlement

Gains and losses silence is one of the most common reasons a retirement division ends up in a place neither party intended, and it is one of the easiest to prevent at the drafting stage. The fix costs nothing at settlement. The problem, once the order is processed, can cost more than the fees spent arguing about it. For the full treatment of how gains and losses are handled inside the order itself, see the gains and losses in a QDRO guide and the settlement language review guide.

What TOVA does not do

• We do not provide legal advice. Counsel makes the legal calls.
• We do not provide tax advice. The client's CPA handles tax.
• We are not a law firm. We document what the records show and what the plan can administer.

More of Denisa's published work, the Settlements Done Right newsletter, and attorney references are on the resources page.