Dividing Retirement Funds With A QDRO
A qualified domestic relations order (QDRO) or a domestic relations order (DRO) is a necessary court order for a spouse to obtain the marital share of the pension and retirement benefits of the other spouse. The order directs the administrator of a retirement plan to distribute a portion of one party’s retirement to the other.
Generally speaking, there two types of retirement plans: A defined benefit plan and a defined contribution plan. A defined benefit plan, often referred to as a pension, is a monthly payment to a retiree based upon years of employment. A defined contribution plan, like a 401(k), IRA or 403(b), is a plan where money is saved by the plan participant on a pre-tax basis and invested in funds. The participant cannot withdraw from the plan before the age of 59.5 without incurring penalties (absent certain exceptions).
Splitting A Retirement Plan In Divorce
The courts use a formula (referred to as the “Majauskas” formula, which came from the case, Majauskas v. Majauskas, 61 N.Y.2d 481 (N.Y. 1984)), to calculate the split. Under the Majauskas formula, the actual accrued benefit is multiplied by a fraction. The formula is usually a fraction using as the numerator the number of months of contribution to the plan while married. The denominator will be the number of months of contribution to the plan. That fraction will be multiplied by one half (1/2). This figure will the nonparticipant spouse’s pro-rata share of pension benefits. In a long-term marriage, this is usually 50%.
Essentially, the court in the Majauskas case held that the vested, unmatured pension benefits were marital property to the extent they were earned during the marriage and that the proper formula for determining the benefits to be awarded to a nonparticipant spouse was based on the benefits accrued at retirement, not as of the date of divorce. This type of approach is sometimes referred to as a “coverture formula.”
It is important to address certain issues, including pre- and post-retirement death benefits and/or survivors benefits, in the divorce or separation action. If the participant spouse dies before eligibility to receive benefits, the former spouse probably would not receive any benefits unless the QDRO specifically indicates that the former spouse shall receive benefits, even if the participant spouse dies before this compensation is distributed.
Moreover, the right of a spouse to receive a “set off” of a pension MUST be considered when doing a swap for real property versus a waiver of real property!
Talk Through Your Concerns With A Skilled Divorce Attorney
When you work with my firm, Kurt T. Richards, P.C., you can count on receiving straightforward advice on your rights and options when it comes to dividing marital assets like pensions. I am not in the business of selling fantasies — I will be upfront with you on what needs to happen and what your rights actually are given your circumstances. Call me at 718-720-1000 to set up a free consultation.