Division of Pensions in Divorce
Although the real estate market has bounced back from historic lows, pensions and retirement plans are often the largest assets in a divorce.
There are several ways that pensions and deferred compensation plans can be divided: 1) in-kind distribution if there are several IRAs and pension plans to be divided; 2) by valuing the pensions plans and allocating the pension plans along with other assets according to their value; and 3) dividing the pension plans with Qualified Domestic Relations Orders (QDROs), which divide the community property interest in the plans between the spouses. Each method of dividing the pensions has its advantages and disadvantages depending upon the circumstances of the parties. Use of QDROs is very common. QDROs are specified by federal law, and most of the requirements for QDROs are included in ERISA.
Public employee pensions, including UCRP, PERS and STRS, are not subject to federal law, but are nonetheless divided by Orders similar to QDROs.
California law has provided an advantage to the non-employee spouses in the division of public pensions. The orders created under State law allow separate accounts to be created for the non-employee spouse, and the non-employee’s share of the pension benefits can be amortized over his or her lifetime.
In some cases it makes sense to create a separate account for the non-employee spouse. However, in many cases it makes sense for the non-employee to receive a percentage of the employee spouse’s pension payment after the employee’s retirement. The reason to select this approach is that the non-employee spouse can share in the larger pension payments due to the employee souse’s income growth over time.
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