Divorce QDROS Key Provisions

If you are getting divorced and have worked during the marriage and accumulated pension credits, there will most likely be a QDRO to divide the marital portion of the pension, unless the pension is waived or the marriage is of such short duration that there is little economic motivation to divide (and thus it is waived). Pension division is a normal part of Equitable Distribution. The actual provisions will appear either in the Settlement Agreement or, if after trial, in the Decision and Order of the Court.

The marital portion is generally the number of years and months earned between the date of marriage or hire (whichever is later) and the date of filing for divorce or separation divided by the total years and months of credited service. While other dates can be negotiated, that will not be addressed in this blog. So if the working spouse was employed in a union at the time of marriage for 15 years and then the marriage period was an additional ten years, the martial portion would be 10/25 or 40% of which the usual distribution would be 1/2 of 40% to the non-working spouse. Again for this blog I am skipping reasons why the percentage might be negotiated.

One of the most important decisions to make or request is the right to survivor benefits if you are the spouse of the employee (participant). Survivor benefits are also known as option elections made by the participant. The purpose is to provide the spouse with the right to continue to receive benefits after the death of the participant. Sounds simple, but there is a catch which is that it reduces the benefit to both persons while they are both alive. The reason is that the Pension Plan Administrator has to consider how much money is "in theory" necessary to pay the benefits to two people for their predicted life expectancy. So if there is a big age difference between the spouses there will be more of a reduction due to the longer life expectancy if the younger person is the non-working spouse.  How the cost of the survivor benefit is allocated can sometimes be negotiated.

Pop-Up Option is a relatively inexpensive and a good additional option (if available) for the participant. The benefit is that if the non-working spouse dies before the participant the full pension amount is paid to the participant after the death of the spouse.

Cost of Living Adjustments should be included in the QDRO if you are the non-working spouse so that you will get your share of those benefit enhancements over time.

Pre-retirement death benefits are very important to include for the non-working spouse because it provides a share of the payment made if the working spouse dies prior to retirement. If this provision is left out, there are no monies paid to the surviving spouse.

Exclusion of Disability Increase is very important for the participant. If the participant receives a disability pension, the QDRO must exclude the enhancement due to disability otherwise the increased benefit that exceeds what would have been the ordinary benefit is shared rather than retained solely by the injured worker.

Taxation is usually not an issue as each person pays taxes on the portion that they receive.

The bottom line recommendation is to make sure that your divorce attorney is knowledgeable in the drafting and negotiation of the provisions that go in the Divorce Settlement Agreement because that document will control the drafting of the QDRO provisions.