Getting divorced is bad enough, but there's one way to make it worse; by mishandling the divvying up of your retirement funds.

It's happening a lot these days, as more Americans manage their own 401(k)s and other company-sponsored retirement plans and thus have to deal with tricky financial issues that previous divorcees rarely had to confront.

In one recent case, a New Mexico orthodontist agreed to give his wife $1 million from his retirement plan as part of their divorce settlement. He thought, understandably, that she'd be responsible for paying tax on the money when she eventually got control of it, just as he would have been. But in fact, as soon as the divorce was final, he got clobbered with nearly $400,000 in federal income taxes - a decision upheld by U.S. Tax Court. That's right: it was his tax bill and his alone; she got the $1 million tax-free because the agreement didn't specify that she was to receive that money directly. The court ruled that the agreement called for the orthodontist to withdraw it from his own account and then hand it over to his ex-wife.

What's startling is, the whole thing easily could have been avoided. The orthodontist simply neglected to fill out a form called a Qualified Domestic Relations Order, or QDRO. This legal boilerplate establishes one spouse's right to all or part of the other's retirement plans. Under a QDRO, the spouse receiving the money pays the tax on it - which seems only fair.

Most divorce attorneys understand the concept of QDROs, but they often don't know how to follow through on all the paperwork.

Here's what a QDRO (see sample below) must include:

* the name and address of the plan participant and the "alternate payee";

* the name and account number of each retirement plan affected;

* the amount or percentage of benefits to be paid by each plan to the alternate payee; and

* the number of payments or the period covered by the QDRO.

Where does one put a QDRO? It goes in the divorce decree or court-approved property settlement, which should further specify the following: that a QDRO is being established under the state's domestic relations laws and Section 414(p) of the Internal Revenue Code. This wording must be in the divorce papers; mere intent to established a QDRO doesn't cut it.

NOTE TO PRACTITIONERS: This sample QDRO may be used for allocation of the participant's account balances under the Sargent & Lundy Savings Investment Plan. this sample QDRO is provided for the convenience of the attorneys for participants and alternate payees only, and does not intend to alter the agreement of the parties. Of course, it is the responsibility of the drafting attorney to ensure that the draft order meets the legal requirements for qualification.

WHEREAS, by order issued on__________________, the marriage of_______________ and____________________has been dissolved; and

WHEREAS, in connection with the property settlement agreement related to or contained in the order providing for the distribution of property between____________________________ (hereinafter referred to as the "participant") and________________________ (hereinafter referred to as the "alternate payee"), certain retirement benefits earned by the participant are to be transferred to the alternate payee; and

WHEREAS, this Order is intended to be a Qualified Domestic Relations order (QDRO") as defined in Section 414(p) of the Internal Revenue Code of 1986, as amended (the "code"), and Section 206(d)(3)(E) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA");

IT IS HEREBY ORDERED AS FOLLOWS:

1. The alternate payee shall be entitled to receive:

[If the participant is not currently receiving benefits under the plan, choose paragraph (i). If the participant is currently receiving installment benefits under the plan, choose paragraph (ii)].

(i) _______percent of the account balances accrued by the participant under the Sargent & Lundy Savings Investment Plan (hereinafter referred to as the "Savings Plan"), determined as of _________(enter date), hereinafter referred to as the "stipulated date". Such amount shall be allocated to the alternate payee pro rata from all accounts maintained in the name of the participant under the Savings Plan and pro rata from all investment fund subaccounts maintained in the name of the participant. Such amount shall be segregated into a separate account established in the alternate payee's name in accordance with the provisions of the Savings Plan until distribution of the account is made to the alternate payee. The alternate payee retains the right to elect the date his or her benefits shall be paid or shall commence. Benefits to the alternate payee may be paid or commence as soon as practicable after the date of entry of this Order and approval of such Order by the Administrator of the Savings Plan (subject to the notice requirements provided below), or at such later date as the alternate payee may elect; provided, however, that payment of benefits to the alternate payee must commence not later than the required commencement date provided in the Savings Plan. the alternate payee retains the right to elect the form of distribution or her or her benefits (except for a joint and survivor annuity based upon the lives of the alternate payee and his or her subsequent spouse), to the extent permitted under the Savings Plan. Distribution payments are made on each business day of the month, or at such other time as the Administrator may determine.

[Paragraph (ii) should be selected only if the participant is currently receiving installment benefits under the plan].

(ii) ________percent of the dollar amount of each installment payment otherwise to be paid to the participant, payable as and when paid to the participant, commencing as soon as practicable after the date of entry of this Order and approval of such Order by the Administrator of the Savings Plan, and ending with the payment coincident with or immediately preceding the participant's date of death or the final payment made to the participant, whichever is earlier.

2. The last known mailing address of the participant is: ______________________________.

3. The last known mailing address of the alternate payee is: __________________________.

4. This Order does not require the payment of benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order. The assignment of benefits does not require the Savings Plan to provide any time of form for benefit, or any option, that is not otherwise available under the Savings Plan.

5. The Court retains jurisdiction to amend this Order only for purposes of establishing or maintaining its qualification as a Qualified Domestic Relations Order under the Code and ERISA; provided that no amendment of this Order shall require the Savings Plan to provide increased benefits, or to provide any type or form of benefit, or any option, not otherwise provided by said Plan.

6. A copy of this Order shall be promptly communicated to the Administrator of the Savings Plan by the alternate payee or his or her counsel.

BY THE COURT:

___________________________________

JUDGE

The following additional information is extremely important in determining the status of the participant's benefits. Please fill out this sheet and return it with the draft QDRO to Kathy Davis at Sargent & Lundy, 55 East Monroe Street, 31th Floor, Chicago, IL 60603:

Participant's Date of Birth______________________

Participant's Date of Hire at Sargent & Lundy____________________

Participant's Social Security Number_____________________

Alternate Payee's Date of Birth_____________________

Alternate Payee's Social Security Number_____________________

Does the participant have a loan outstanding from his or her plan account?

__ No __ Yes $__________________(total amount)

If yes, the QDRO must indicate how the loan will be accounted for in determining the portion of the participant's account balanced awarded to the alternate payee.