If you and your spouse are considering, or are in the process of divorce, and one or both of you has a corporate benefits or civil service, 401(k) savings and/or pension plan, know that all pensions are not created equal. And that fact is extremely important to realize as you proceed, hopefully, toward an equitable division of the marital estate.
As we discussed in one of my prior columns, you and your attorneys will likely be involved in drafting a QDRO, or Qualified Domestic Relations Order, to initiate payment(s) to either or both of you, depending on your mediated settlement agreement (MSA) and/or divorce decree.
The federal government requires some unique wording to be used in QDROs drafted with regard to civil service pensions. And the specific requirements can get complicated quickly. Often, divorce attorneys are not specifically trained in this area, and couples or individuals could end up redoing the QDRO several times to "get it right," if not completed correctly. My advice would be to secure the assistance of a certified divorce financial analyst or another experienced professional in drafting QDROs for civil service pensions. Another tip: start working on the civil service QDRO and try to get it done before the MSA and/or divorce decree is signed.
As mentioned previously, there are several unique aspects to drafting the specific wording of a QDRO when civil service pensions are involved. Here are some to be aware of:
These four areas of a civil service pension must be addressed separately in the QDRO: any Retirement Annuities, lump sum payments, Survivor Annuities and Thrift Savings Plans.
While a corporate pension is normally a stable payment for the lifetime of the individual, a civil service pension has an inflation adjustment tied to the consumer price index. This gives this pension a powerful advantage over the typical corporate pension.
An example that comes to mind involved a teacher with a $50k TRS pension and a husband with a $75k Civil Service pension based on his years with NASA. The wife was adamant that she receive ½ of his and he receive ½ of hers, so that she could participate in the cost-of-living adjustments that were offered in the husbands plan. She was wise to request this method of handling the pensions, since the TRS pension doesn’t offer cost-of-living adjustments.
In the corporate pension plan, the decree or agreement incident to divorce must clearly state the percentage going to the non-employee and an “as of” date. However, Civil Service wants much more detail in the decree and MSA, so that those two documents and the QDRO agree on treatment of the pension at death and other issues.
For more information about QDROs and pensions, please visit http://www.lifetimeplanning.cc/advanced_search_result.php?keywords=QDROs.... Also see http://en.wikipedia.org/wiki/QDRO.
Join Patricia Barrett at her upcoming 2013 Houston Leisure Learning classes on September 29 and November 11. She will also be presenting at the Guide to Good Divorce seminars in Houston on September 28. For more information on divorce financial planning or divorce mediation, visit Patricia's website, Lifetime Planning.