Qualified Domestic Relations Orders (“QDRO’S”) and Pensions

The Orders to divide pensions in divorces are generically known as Qualified Domestic Relations Orders.  They may also be known as Military Retired Pay Division Orders for military personnel, FERS Benefits Court Orders for federal employees, Retirement Benefits Court Orders for Thrift Savings Plan benefits of federal employees, all with the same purpose of dividing the pension benefits of divorcing spouses.  For most middle class families, the pension, along with the marital residence, is the most valuable asset.  For this reason, it is especially important that your attorney understand the process of dividing the pension assets.

Defined benefit plan pensions are what we know as traditional pension plans where a retired employee will receive a monthly benefit upon retirement.  These plans are disappearing in the private market and are more common for government employees.  For example, teachers in New York State are part of the New York State Teachers’ Retirement System and employees of New York State are part of the New York State and Local Retirement System.

The most common form of pension today is what is known as a defined contribution plan.  A 401 (k) is a defined contribution plan and operates as a pre-tax savings account where an employee can divert savings each pay period into an employer 401 (k) plan and not be taxed on the earnings which are deposited into the employee’s account in the plan.  Some employers will match the employee’s contributions up to a certain percentage.  The employee’s account will be valued depending on the investments that comprise that account.

A 403 (b) plan is a defined contribution plan that is also known as a tax-sheltered annuity (TSA) plan, and it serves as a retirement plan for certain employees of public schools and employees of certain tax-exempt or non-profit organizations The 457 plan is another type of defined contribution plan that serves as a deferred-compensation retirement plan that is available for government employees and certain non-government employees.

The division of pension assets as part of a divorce should take place at the time of the divorce or shortly thereafter.  When a significant period of time elapses between the time of the divorce and the division of the pension assets, there is a greater likelihood that problems will develop.  Make sure that you ask your attorney at the conclusion of the divorce whether or not the pension assets have been divided.



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