QDRO forms to divide pension benefits in case of divorce – "shared interest" Gold "Separate Interest" Getting closer
Many people facing the prospect of divorce are surprised to learn that pension benefits increased 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 at the time of divorce. . A pension plan falls into 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 payable during his or her life.
Due to certain provisions contained in a federal law known as the Employment Retirement Security Act, a divorce decree or marriage agreement, by itself, is not a legally sufficient mechanism to divide a pension plan. It is essential that the court enter an additional order, known as a qualified domestic relations order (QDRO), and have it approved by the pension plan administrator.
In situations where the participating spouse is not yet retired, the QDRO may use two different methods to divide pension benefits. These include the “shared interest approach” and the “separate interest approach.”
If a QDRO form uses the Shared Interest Approach, payments to the Alternate Payee cannot begin until the Participant chooses to retire and begins receiving a retirement subsidy. In addition, payments to the Alternate Payee must end upon the death of the Participant, unless the Alternate Payee has been 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 has been made. chosen by the Participant at the time of the Participant’s retirement.
If a QDRO form applies the separate interest approach, “separate interest” is established for the alternate payee and adjusts for its actuarial life expectancy. In addition, the Alternate Payee controls when and how benefit payments are received. The Alternate Payee may begin receiving benefits on the Participant’s earliest retirement date, rather than waiting for the Participant to begin receiving a retirement allocation.
In most cases, it is highly beneficial to the non-participating spouse if the QDRO form uses a separate interest approach. Sample QDRO forms are available for download. Once the proposed QDRO form is completed, the document must be submitted to the pension plan administrator for approval and subsequently to the divorce court hearing the matter.