McCormack Family Law | Top Divorce Lawyer | Child Custody & Support

The last post on this topic was about the best way to get a Qualified Domestic Relations Order (QDRO). In short, you have to get the language just right.

Now and then, however, it happens that a perfectly written DRO, qualified by the plan administrator and thus turned into a QDRO… is wrong.

Back to our heroes, Harry and Mary Band. They finally have a QDRO in place and the pension plan is sending out two checks: one to Mary for her half of the marital portion and another to Harry for the rest of the benefit.

‘Wow! Check’s so small I can’t even see it!’ says Mary.
‘I hardly feel the pinch,’ smiles Harry.

The asset division in their divorce decree says that Mary gets half of Harry’s 20-year pension benefit. Period. Unfortunately, the DRO says that she gets half of the benefit as of the date of divorce. The decree and the QDRO are at odds.

As it happens, the Bands’ divorce was final when Harry had 19.3 years of service in. The way his plan is written, his benefit becomes worth much more at 20 years of service than it was at 19.3 years of service.

The QDRO that the pension administrator follows gives Mary half of the smaller benefit amount. The court intended for her to get half of the larger amount.

How did this incorrect DRO get qualified? Didn’t the pension plan administrator do the math? Of course not. That’s not his job; he just looks at the language of the DRO, not whether it correctly calculates how much each party should get.

Who’s job is to do know the terms of the pension plan and do math? Once again, it is the job of the lawyer. The lawyer has two DRO responsibilities. First, to ensure that the language of the DRO meets the exacting requirements of the law. Second, to ensure that it puts into effect the intent of the terms of the divorce decree.

A divorce decree is a judgment: it decides the rights and responsibilities of the parties. But a DRO is not a judgment—that is, it doesn’t decide anything. It is simply a type of  document that helps put a judgment into effect.

Therefore, an incorrectly calculated QDRO can be changed. Fortunately, most decrees contain a standard paragraph that says the court retains jurisdiction to correct any DRO that doesn’t effectuate the intent of the decree. Even better, courts inherently have that power.

So what can Mary do? Go back to court and get it corrected.

That means more expense, of course. A better strategy from the start is to make sure legal counsel –or the pension experts he uses– has a good grasp of pension law and the ability to correctly interpret pension plan documents.

By the way, when a lawyer acts to prequalify the DRO, he can ask the plan administrator how the DRO language dividing the benefit will be interpreted. In the case of the Bands, the incorrect allocation of benefits would have been caught –and fixed– right away.

Now that the difference between DROs and QDROs is clear, we can look at a common problem that comes up with Domestic Relations Orders: getting them qualified.

I’ll start with the moral of this episode: make sure the DRO is pre-qualified. Now the story.

Many people think that when a court issues an order –any order– what it says goes, right or wrong. That’s not necessarily the case for a DRO, which is meant to put into effect the court’s division of pension benefits.

In the first place, courts don’t write DROs, so it’s not safe to assume that because the judge signed the DRO it meets the requirements specified by law. Who does write the DRO? The lawyer representing the beneficiary or a professional pension consultant or the beneficiary herself (usually a very bad idea).

Does that mean it’s going to be qualified and go into effect? No telling. The language ERISA uses and requires is pretty arcane. If the structure and language of the DRO are not in proper ERISAspeak, the DRO will not be qualified.

Take Harry Band from episode 1. He has a defined benefit pension plan. In his case, the Domestic Relations Order did not pass muster with the pension plan administrator, who notified him, his counsel, and Mary Band after the divorce was final. 

Time went by. They wrote another order and took it to the judge, who issued it as a new DRO. Again, the plan refused to qualify it. More time went by. People were busy. Harry Band retired and took his pension.

Mary Band is not receiving her half of the marital portion of those benefits. Now it’s starting to get costly for her to pursue it. Not pointless, by any means. Just costly for everyone– Mary and Harry.

There’s a relatively simple way to avoid this situation. First, get your pension documents together early in the divorce process.

Why? Because it gives your lawyer the information and time needed to draft a DRO and get it pre-qualified by running it by the pension plan administrator before the judge sees it. If the plan administrator is not going to qualify it, they’ll say why not, quite specifically.  Then the DRO can be rewritten and reviewed again… and again… until it qualifies.

That’s how to turn a DRO into a QDRO in time to put smoothly into effect the intention of the court: to make sure the plan issues two checks starting at retirement, one for Harry and one for Mary’s half of the marital portion.

But there’s more than one wrong way to write a DRO. That’s episode 3.

(more…)

If you have earned pension credits in a public or private pension plan, those benefits are  probably one of your two most valuable assets—the other being your house. When you’re ending your marriage, the court is always going to pay particular attention to these assets.

When does a spouse get a share of the pension? As a rule of thumb, assets acquired during a marriage are divided evenly. In some cases where a marriage is of relatively short duration –say, less than two years— the cost of dividing the pension credits may be prohibitive. In all other cases, the court first determines what portion of the total pension benefit was earned during the marriage

How does the court determine how to divide the pension? It follows a basic formula: Figure out what part of the pension was earned during the marriage. That’s called the marital portion. The court then divides that portion in half.

Here’s an example: Say you had your pension for 10 years before you married. Now you’re ending your marriage after 10 years. You expect to retire in 20 years. That means 120 months or one-quarter of your 480-month pension benefit was earned during your marriage. That’s the marital portion. It will be divided in half—fifty percent to you, fifty percent to your spouse. The other three-quarters of your pension, earned before and after your marriage, is yours alone.

Is the marital portion always split 50-50? Ohio law generally says that marital assets are to be divided equally but courts can exercise discretion. In some circumstances, courts have been known to divide the marital portion differently based on many factors.

What if both partners have pensions? Each party shares in the marital portion of the pension of the other, just as above. The calculations can get complicated so you need to make sure you have counsel sophisticated enough to understand pension law. In general, however, courts will keep things simple by writing a separate order for the division of each pension.  

So much for the basics. To really understand what will happen to your pension during divorce, however, you need to know what kind of pension it is. In Part 2 of pensions in divorce, I’ll cover the two most common types of plans.

Are disability benefits considered marital assets? Many people assume that they are and will thus be counted in the division of marital property. It’s not quite that simple. There are two basic facts about disability benefits in the context of divorce:

1. Disability benefits paid out on a regular basis (like workers comp, for instance) are treated as earnings, not assets.  Thus, they count as income for purposes of calculating spousal support and child support.
2. This is true until the disabled spouse reaches an age when s/he could have retired with a pension benefit.

When that would-be retirement age comes, things change. Say you are on disability but would have been eligible for a public or private pension at retirement (often age 65 but as young as 55). At that time, your disability payments can lose their character as income. When that happens, your disability benefit becomes a disability pension. And a pension is an asset subject to division with a divorced spouse.

These are just the basics. If disability payments are in play when you’re ending your marriage, you want to make sure the disposition of those benefits is done right, for the present and for the future. Make sure your legal counsel has knowledge and experience in this area.

An important note: A military disability is an entirely different creature. I’ll write about that in another post.

Dividing pension benefits when a marriage ends is a pretty technical process. You might have a separation agreement that will spell it out. Or your divorce may include many unresolved financial issues. Either way, you should be ready with the particular documents that are needed to divide pension benefits properly:

• the pension plan and/or trust document
• the summary plan description
• the most recent summary annual report
• the most recent benefits statement provided to the participant
• the required written regulations explaining the plan’s process for qualifying domestic relations orders (*see the comment below)

Do you have to provide these documents? Technically, no. But your attorney will need to see the documents in order to determine a fair division of pension benefits. And if there is any disagreement, the court will direct you or your spouse to provide them.

Where do you get these documents? From the pension plan administrator. The employer or the union offering the plan can give you the name and contact information for this person, who is required by law to give you the information that you will need to present.

*This last item is technical. The plan administrator will know exactly what you want when you ask for ‘an explanation of your QDRO process.’