Pension and retirement benefits are marital assets when earned during the marriage, which means your ex-spouse may be entitled to an equitable distribution of that property.
A QDRO is a Qualified Domestic Relations Order. It is the last part in the divorce process when retirement accounts and pensions are involved. Once the final judgment is signed by the judge, approving any agreements made in settlement (including divisions of the retirement accounts), or makes a ruling if there was a trial, a QDRO must be drafted. This order allows the plan administrator to divide and distribute funds.
The process can be lengthy, depending upon who oversees a particular account. Additionally, drafting the QDRO can be quite complex if the plans have other benefits and features. It is very important that the language used is detailed, accurate and follows any guidelines set by the plan administrator.
Typically, the ex-spouse is entitled to half of the total sum earned by the plan participant during the marriage. However, benefits can be divided three different ways.
- Flat dollar amount: The parties can agree on an amount to lock the non-participant spouse into a lump sum. That sum will not change even if the participant's salary increases before retirement. It also excludes the ex-spouse from any right to a cost-of-living (COLA) adjustment.
- Modified Majauskas: The standard calculation for distribution is the Majauskas Formula, which is 50 percent multiplied by the number of years of service while married and then divided by the total service credit at the time of retirement. However, the parties can agree to different factors for the equation.
- Specific date: Sums are calculated using hypothetical benefits based on a projected and specified date. Calculations include potential retirement dates, final salary and any plan reductions. This calculation tends to provide the former spouse with a smaller portion of the benefits.
Why it's important to have an attorney
QDROs are complex. Beneficiary designations may change when the divorce is final, unless specified, and the parties must also consider death benefit distribution, as well as who will pay for certain costs.
An experienced attorney will negotiate terms and draft a solid QDRO in accordance with the law and plan administrator guidelines to have your QDRO approved, submitted and finalized as quickly and smoothly as possible. Additionally, your attorney can determine if modifications can be made to an existing QDRO.