QDROs, Pension and Retirement Plan Division in Divorces
Qualified Domestic Relations Order (QDRO)
In a divorce, retirement benefits are typically subject to division between the parties. The division usually occurs by way of actual division or asset exchange. After the court has determined the actual division of the retirement benefit, a QDRO is issued. A QDRO is a judgment or order that recognizes the existence of the non-employee’s right to receive a portion of the employee’s retirement benefits. The QDRO is used to divide pension rights between the parties. The QDRO must be submitted to a plan administrator so that the non-employee can receive their portion of the benefits. The division of the retirement benefits is not considered a taxable transfer of benefits to the non-employee.
Types of Plans
A defined benefit plan is one where a company agrees to pay some amount based upon salary beginning at the employee’s retirement until the employee dies. Basically, a defined plan is one in which the employer promises to pay the employee money on their retirement. The benefit does not constitute an account that is invested in any type of funds or stocks.
A 401K plan or an IRA are not defined benefit plans; rather they constitute contribution or individual account plans. Other types of contribution plans include money purchase pension plans, employee stock ownership plans, and other plans. In these contribution plans, the employer states what they will contribute to the plan each year, but employees are not assured to receive a set amount in the plan each year.
There are several federal plans in which retired federal employees are entitled to receive benefits from. The plans include:
- Military Retirement Benefits.
- Social Security Benefits.
- Civil Service and Federal Employees Retirement.
With social security benefits, the non-employee may be entitled to a portion of the employee’s social security if they were married for more than ten years. The non-employee can be awarded up to 50 percent of the employee’s benefit.
Division of Retirement Plans
Courts may award a certain amount of the employee’s plan to the non-employee at the time of divorce. The courts may award either a percentage or an exact dollar amount of the retirement plan. Most states give the courts a lot of discretion when dividing retirement assets. In determining the division of retirement benefits, courts also look at the length of marriage, the time the employee worked for the employer, and whether the amount in the fund was fixed or still growing.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.