Retirement Issues

Sheila Vierra, Attorney At Law, LLLC is a law firm assisting clients in Honolulu and throughout Oahu with a range of family law matters, including matters involving the division of retirement plan assets in domestic relations proceedings.

Qualified Domestic Relations Orders (QDROs)

AQDRO, or Qualified Domestic Relations Order, creates a right for an "alternate payee," to recover an equitable, or fair, share of an employee's retirement benefits during a divorce, separation, or other family law proceeding.  An alternate payee may be a spouse, former spouse, child, or other dependent.  Usually a former non-employee spouse is the beneficiary and is paid to satisfy family support or property obligations. Without a QDRO, an alternate payee is unable to recover any portion of the employee's retirement benefits, which often amount to a couple's most significant assets.

A QDRO describes how the assets are divided and what occurs when either party dies. QDROs should be carefully written, and contain:

• Names of the employee and alternate payee (usually the spouse)
• Percent of retirement benefits each spouse receives or method of calculation
• Number or duration of payments
• Retirement plan to which it applies.

Failure to follow the strict requirements for a QDRO or terms of a retirement plan may result in an unintended distribution or no division at all.  To ensure an accurate and favorable division of benefit, divorcing parties should consult an experienced lawyer. 

Federal ERISA

Retirement plans must comply with both Hawaii and federal laws.  The Employee Retirement Income Security Act, or ERISA, is a federal law governing qualified pension plans in private companies in order to protect individual employees.  Pension plans may be qualified or nonqualified.  Nonqualified plans are usually state or municipal plans, and cannot be distributed with a QDRO.  Consult an attorney to determine the extent of your retirement benefits, and whether they are protected by ERISA. 

Retirement Plans

There are many types of retirement plans which, when qualified under ERISA, are usually divisible by a QDRO.  ERISA covers two types of plans, including:

• Defined Benefit Plans
  Defined benefit plans are the same as company pensions.  In these plans, an employee receives specified life-long monthly payments after retirement, or an "annuity," based on his or her salary and length of time with a company. 

• Defined Contribution Plans
  Defined contribution plans require that the employee, employer, or both, make payments to the employee's retirement account.  These plans include 401(k)s, 403(b)s, employee stock ownerships, money-purchase, and profit-sharing.  At the time of retirement, the employee generally receives the balance of the plan, despite higher or lower fluctuations during employment. 

These plans may be subject to early withdrawal penalties and IRS withholdings if they are transferred during divorce.  It may be in the employee's best interest to retain the retirement plan and offer the non-employee spouse other equivalently valued assets.  A knowledgeable attorney should know how to mitigate or avoid damages through a proper transfer, legal plea, alternate settlement, or other legal action. 

Distribution of Benefits

Generally, the non-employee spouse is only entitled to a portion of the retirement benefits that accrued during the marriage, and not to the benefits earned before and after the marriage.  There are a few different ways to divide benefits, including:

• Shared Payments Approach
  In the shared payment approach, the non-employee spouse or alternate payee receives benefits when the employee receives them.  This is often used in spousal or child support orders or if the employee is already receiving payments. 

• Separate Interest Approach
  When a divorce decree divides retirement benefits as part of the marital property, the benefits are generally divided into separate portions.  The non-employee spouse receives a separate right to his or her portion, which can be paid at a time and manner of his or her choosing.

• Survivor Benefits
  In drafting a QDRO, it is important to consider both retirement and survivor benefits.  Retirement benefits are payable directly to the employee, while survivor benefits are payable to another party after the employee dies.  It is important to carefully analyze a retirement plan for survivor benefit distributions. 

One of the most commonly litigated issues in this area of law is the increase of benefits after divorce.  The employee spouse generally argues that the increase occurred after the marriage ended and thus is solely his or her own property.  On the other hand, the non-employee spouse contends that the increase was earned during the marriage due to community efforts.  An attorney with experience in dividing retirement plans can effectively advocate for your best interests in any dispute regarding benefits.

Military Retirement

The Uniformed Services Former Spouses' Protection Act (USFSPA) governs how military retirement benefits are calculated and divided after a divorce.  In order to divide and distribute any military retirement funds, the spouses must have been married 10 years or longer while the military member was on active duty.  Determining how much of military retirement is marital property and how much is separate property may be possible only after retirement has occurred, as it is usually distributed in proportion to the percent earned during the marriage. 

The division of retirement benefits is an incredibly complex but important part of the divorce process.  For help with your divorce and retirement issue from one of the only attorneys in Oahu experienced with QDROs, contact Sheila Vierra, Attorney At Law, LLLC today.