Many people facing the prospect of divorce are surprised to learn that pension benefits accrued during the course of a marriage are considered marital property (or, in some states such as California, community property) that is divided between the spouses upon divorce. A pension plan falls under the category of retirement plans known as defined benefit plans. These types of retirement plans generally provide that upon retirement, the participant (employee) is entitled to a monthly annuity that is payable over his or her lifetime.
Because of certain provisions contained a Federal law known as the
Employment Retirement Security Act, a divorce judgment or matrimonial
settlement agreement, standing alone, is not a legally sufficient
mechanism for dividing a pension plan. It is essential that a further
order, known as a qualified domestic relations order (QDRO) be entered
by the court and approved by the pension plan administrator.
In situations where the participant spouse is not yet retired, the QDRO
form can utilize two different methods for dividing pension benefits.
These include the "shared interest approach" and "separate interest
If a QDRO form uses the Shared Interest Approach, payments to the
Alternate Payee cannot begin until the Participant chooses to retire and
begins to receive a retirement allowance. Furthermore, payments to the
Alternate Payee must end upon the Participant's death unless the
Alternate Payee was designated in the QDRO as the surviving spouse of
the Participant for the purpose of electing a Qualified Joint and
Survivor Annuity and such election was elected by the Participant at the
time of the Participant's retirement.
If a QDRO form applies the Separate Interest Approach, a "separate
interest" is carved out for the Alternate Payee and adjusted to his or
her actuarial life expectancy. In addition, the Alternate Payee controls
the timing and manner of his or her receipt of the benefit payments.
The Alternate Payee can commence receiving benefits at the Participant's
earliest retirement date, rather than wait for the Participant to begin
to receive a retirement allowance.
In most instances, it is highly beneficial for the non-participant
spouse that the QDRO form utilize a separate interest approach. Sample
QDRO forms are available for download. Upon completion of a proposed
QDRO form, the document must be submitted to the pension plan
administrator for approval, and, thereafter, to the divorce court
adjudicating the matter.
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