When considering what they’re entitled to in a divorce, most people think of dividing up the bank accounts and the property. Few of them think of the pension, 401k, or other retirement plan, but they should.
In most states (depending on the relevant marriage law) all pension money earned during the marriage is considered an asset that belongs to both parties and should be divided accordingly. Along with the rest of the estate, the pension benefits can be divided at the time of the divorce. The court can issue an order (known as a domestic relations order) for the pension plan to make payments to a former spouse, in which case they’ll be listed as an Alternate Payee.
Most pension plans will pay benefits directly to an ex-spouse if the domestic relations order meets certain criteria. If there are survivor benefits on a pension, payments can be made for the life of the employee and even after, regardless of whether they die before or after retiring. But everything is dependent on the prevailing local law, so check your state, county, city, and village requirements if you’re getting divorced and want to know your chances of getting your share of your spouse’s pension. Illinois allows both court orders and model court orders.
But the federal Employee Retirement Income Security Act (ERISA) controls all corporate-defined retirement plans, as well as certain defined contribution plans, and it pre-empts any state court orders. If a domestic relations order meets the requirements laid out by the ERISA, it becomes known as a Qualified Domestic Relations Order (QDRO). A plan administrator can determine whether a particular retirement plan fulfills all the criteria for a QDRO.
Government and military plans are exempt from ERISA, but they have their own regulations. Government pension plans involved in a domestic relations order that meet the necessary requirements are also referred to as QDROs.
The criteria for qualifying as a QDRO include things like the need to state the amount or percentage of the benefits to be paid to the Alternate Payee (or at least the manner in which that amount or percentage is to be determined). They also require a specific number of payments or the time period to which the order applies.
There are also limits on what QDROs can do. For example, they cannot require the plan to pay any benefits in any option that is not already offered by the plan. They also cannot require the plan to pay benefits that are worth more than the value of the Primary Participant’s interest (an actuary will be needed to determine that number); and they cannot require payment be made to an Alternate Payee that has already been set aside to be paid to an earlier Alternate Payee.
The first thing that needs to be done when claiming a right to part of a spouse’s retirement plan is to determine the value. That’s easy for a contribution plan, such as a 401k or IRA, because the current value gets reported to the account holder in statements that are provided either monthly, quarterly, or annually. But determining the value for a corporate-sponsored pension gets a little trickier.
In all cases involving the division of retirement accounts, it is important to consult with an attorney who is experienced in family law and the preparation of these Orders. Because the Orders entered with the family Court must often lay out the key information for the execution of a QDRO, the drafting of the Judgment for Dissolution and/or any settlement documents is just as important as the preparation of the QDRO itself. A certified copy of the divorce judgment must be sent to the Plan Administrator with the QDRO in order to finalize the division of the account, so the terms of both must match.
The attorneys at Sherer Law Offices have been providing legal representation for divorce cases, as well as all types of family law for more than 20 years. Our experienced divorce attorneys will take the time to really listen to your unique situation so that they can plan strategies that can best protect your best interests.