Qualified Domestic Relations Order “QDRO”


It is well settled that pension plans are marital property subject to equitable distribution. Thus, when divorcing, it is important to ascertain what, if any, pension plans exist. The Court of Appeals has held that because marital property is that which is acquired after the marriage and before the execution of a separation agreement or commencement of a matrimonial action, it is necessary to separate from the plan what interests a spouse may be entitled. This is accomplished by comparing the number of months from the date of the marriage to the date of the commencement of the action against the total number of months of employment.

Once this is figured out, how does the pension plan administrator know to pay a former spouse? The answer is the Qualified Domestic Relations Order, commonly referred to as the QDRO. This court order requires that the plan administrator separate a designated portion of the employee spouse’s account into a separate account for the non-employee spouse. A QDRO must: (1) recognize the existence of an alternate payee’s right to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a participant under a plan; (2) meet certain technical requirements. These requirements are: (a) the order must specify the last known mailing address of the participant and each alternate payee covered by the order; (b) state the amount or percentage of the participants’ benefits to be paid by the plan to each alternate payee or the manner in which the amount or percentage is to be determined; (c) the number of payments or period to which the order applies; and (d) each plan to which the order applies. In addition to the above, the QDRO must not: (1) require a plan to provide any type or form of benefit not otherwise provided in the plan; (2) require the plan to pay increased benefits; and (3) require the payments of benefits to an alternate payee which are required to be paid to another alternate payee under another QDRO.

An important provision in a QDRO that must not be over looked deals with when the non-employee is allowed to collect benefits. Make sure that the Court directs that the alternate payee be entitled to receive pension benefits upon the employee’s actual retirement eligibility date vice the day the spouse retires. This avoids a spouse waiting for the ex-spouse to actual retire. For example, if your ex-spouse is able to retire at 62, but decides to keep working past that date, you want to make sure that you are able to collect at 62 vice some date in the future. Additionally, as a practical measure, you want to make sure that the plan has a survivor benefit in your favor. That way, in the event your ex-spouse passes away, your benefits are protected.

LEARNING POINT: When dealing with pension plans, it is important to have them evaluated and if appropriate, have a QDRO entered. Of course, in negotiating a settlement, you may want to waive off your rights to a pension in exchange for a lump sum payment or some other asset. As the owner of the pension, you may want to offer a buyout of benefits. For example, if you are divorcing it is possible that sometime in the future you may want your pension to go to someone other than your ex-spouse. In that case, you may want to figure out a way to offset the rights your soon to be ex-spouse is entitled. These are complicated matters which we will be happy to guide you through.

Qualified Domestic Relations Orders

Pensions Are Marital Property Subject To Equitable Distribution


The Court of Appeals has held that vested or matured rights in a pension plan, whether the plan is contributory or not, is to be considered marital property subject to equitable distribution. The basic rational for this decision is that the money that went into the pension, during the marriage, is money that would have been given to the marriage but for the diversion to the pension plan. In distributing the pension benefits, the Court may order the employee spouse to grant the nonemployee spouse survivorship benefits. Should the Court direct this course of action, the non-employee would receive the increased benefits upon the death of the employee.

How do Courts treat non-vested pension plans? The Court of Appeals held that non-vested plans do not preclude equitable distribution. The rationale is that your right to the plan is continually accruing during the years. There are two approaches to the valuation and distribution of a non-vested plan. The first is to calculate the present cash value of the pension, with a discount since the plan has not vested. The discount will take into account factors such as the pension not actually vesting due to termination of employment or other issues which will terminate the pension. The second approach is to allocate a portion of each future payment to the non-employed spouse. The Court of Appeals suggested that the second approach is best only in the event that the present value cannot be determined.

Another concern that must be addressed is how much of the plan is subject to equitable distribution. There are cases were the marriage will terminate as a result of the divorce yet, the plan will continue to grow in value. What you can generally expect is that the Court will consider at the total amount of months from the date of the marriage to the date of the commencement of the action against the total amount of number of months of employment. Therefore, where a spouse continues to work after the commencement date, which is typical, the benefits earned after the commencement date will not be subject to marital distribution.

How is the administrator of a plan to know to make payouts to your spouse and in what amount? You will need to obtain a Qualified Domestic Relations Order, better known as a “QDRO.” The QDRO must specify the name and last known mailing address of the participant and of each alternate payee covered by the order; the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee or the manner in which the mount of percentage is to be determined; the number of payments or period to which the order applies; and each plan that the order applies to.

LEARNING POINT: Evaluating a pension plan is a complicated process which one should not attempt alone. There are many different approaches in evaluating the plan and if necessary protecting your assets. If you are getting divorced and either you or spouse has a pension plan, contact us immediately to begin preparing your case.

pensions and divorce