For many couples, pension plans make up the majority of the matrimonial property. Some couples may agree to keep “each their own” in the wealth department, but for many other spouses, a division of one of the accounts is necessary to ensure a fair distribution of the marriage assets.
When a divorce from a pension asset is required in a divorce, many people don’t know how to proceed. They may have heard the term Qualified Domestic Relations Order (QDRO), but have no idea if and how it applies to their situation. This lack of knowledge often leads to mistakes that can cost them more money in the long run.
Therefore, it is important to understand early what kind of retirement accounts there are. Once you know what type of accounts are in play, you can assess whether a QDRO – or some other similar order – is required. You will also better understand the most effective way to distribute the assets in the eventual settlement of the real estate division.
Individual retirement account (IRA) – Since IRAs are not covered by ERISA, a QDRO is not required to distribute this type of account. In accordance with 26 U.S.C.A. In §408 (d) (6), an IRA may be transferred to a spouse or former person on the basis of a divorce resolution or a written deed of divorce. This written instrument can be a divorce agreement or a divorce decision. In most cases, an instruction letter and a copy of the Final Judgment / Settlement Agreement should be sufficient to transfer money from the IRA.
Unqualified plans – There are many types of pension assets that cannot be broken down into a divorce. Unqualified plans are outside the jurisdiction of ERISA and are not subject to splitting through QDRO (or usually in any other way). These plans usually have names that contain words such as Supplemental, Excess Benefit, SERP or even Non-Qualified, and are offered to key, high-ranking employees as a means of providing additional retirement benefits beyond those permitted under ERISA. The language of many of these plans specifically excludes payments to anyone other than the employee, and no court order can change this.
Non-ERISA and government pension plans – ERISA specifically excludes all federal government pension plans. While these accounts are shareable, this is done with a different document than a real QDRO. While the name QDRO can be used generically to refer to an order related to the distribution of retirement accounts, government plans each have their own split mechanisms and it is important to understand them all. You can learn more about these plans at www.tsp.gov and www.opm.gov. Rules for national and local government plans vary by state, so it is important to familiarize yourself with the rules specific to your jurisdiction.