QDRO
As discussed in prior blog posts, a spouse’s earnings during marriage are community property. Pension and retirement benefits constitute a form of employment compensation. Thus, regardless of when the benefits vest or are received, their character as community property or separate property depends on the employee’s marital status at the time he/she rendered the services that earned the pension. If the retirement benefits result from employment during marriage, they are community property.[1]
Special rules apply to the division of pensions in a dissolution proceeding. If you or your spouse has a pension plan, a divorce judgment should contain an attachment specifically regarding the pension plan; this form is called “Pension Benefits — Attachment to Judgment” (Form FL-348).
During the pendency of a dissolution case, a nonemployee spouse may give a pension plan a “Notice of Adverse Interest.” Upon receipt of this notice, the plan may be held accountable for payments made against the nonemployee’s interest. Alternatively, the nonemployee spouse may consider whether the plan should be joined to the dissolution proceeding. Both the Notice of Adverse Claim and joinder will place the plan on notice that the nonemployee spouse is asserting an interest in the plan.
In some cases, the pension plan must be joined as a party in the divorce case before a judge will issue an order about how the pension will be divided. This is because, with the exception of spousal and child support orders, no order is enforceable against an employee benefit plan unless the plan has been joined as a party to the proceeding.[2]
The following types of retirement plans require joinder:
- Governmental plan of a state, county, public school/university, or other public agency; and,
- A plan (qualified or unqualified) covering only business owners and spouses or employees of a church.[3]
The following types of retirement plans do not require joinder:
- Federal government plan;
- Funded plan covering employees working for private-industry employer;
- Unfunded nonqualified plan covering employees working for private-industry or tax-exempt employer; and,
- IRAs or annuities.[4]
The court order dividing the pension is called a qualified domestic relations order (“QDRO”). The QDRO must be approved by both the benefits provider and the judge to assure that the spouse who is not the employee of the company or organization (the “alternate payee”) will receive those future benefits.
A QDRO creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan in conformity with qualifications requirements. To be qualified, the QDRO must do the following:
- Identify the plan, participant, and alternate payee;
- Specify the amount of payments (the actual amount of the percentage of benefits to be paid);
- Specify the number or duration of payments;
- Not conflict with a prior QDRO;
- Not require the plan to provide any type or form of benefit that is not otherwise allowed under the plan; and,
- Not merely reserve jurisdiction over the pension plan.
A QDRO cannot bind a pension plan until it is served on the plan. Thus, a QDRO should be sent to a plan administrator by registered or certified mail, return receipt requested. Upon receipt, the administrator must determine whether the order is in fact a QDRO and notify the participant and alternate payee. Generally, the administration has 18 months to make the QDRO determination. An order/judgment dividing a pension does not fail to be qualified because it issues after a judgment for dissolution.
Preparing a QDRO can be technical, and it is often best practice to seek the assistance of counsel if you or your spouse has a pension. Unlike many other family court documents, a QDRO is not a standard court form.
[1] See Marriage of Green (2013) 56 C4th 1130, 1138.
[2] Family Code 2060(b).
[3] See Retirement Plan Joinder — Information Sheet (Form FL-318-INFO).
[4] See Retirement Plan Joinder — Information Sheet (Form FL-318-INFO).