Dividing pensions equitably in a divorce can be challenging

If you and your spouse are considering, or are in the process of divorce, and one or both of you has a corporate or civil service pension, understand that all pensions are not created equal. And, that fact is extremely important to consider as you proceed, hopefully, toward an equitable division of your marital estate.

In dividing these benefits in a divorce, your attorneys will likely draft a QDRO document, or Qualified Domestic Relations Order, to initiate payment(s) to either or both of you from these plans, 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 trained in this area, and couples or individuals could end up redoing the QDRO several times to “get it right,” if not completed correctly in the first place. As mentioned previously, there are several unique aspects to consider when drafting the specific wording of a QDRO when civil service pensions are involved. Here are some to be aware of:

The following 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 means the individual with the civil service pension stands to get more money over the long-term.

In one divorce case, the wife, a teacher had earned an annual $50k TRS pension; her husband, an annual $75k civil service pension, based on his years with NASA.  The wife was adamant that she receives one-half of his pension and he receives one-half of hers. This way she could participate in the cost-of-living adjustments that were offered by the husband’s plan. She was wise to request this method of handling the pensions, since the TRS pension provides limited cost-of-living adjustments.

In a 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 requires 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.

In instances like those described above, my advice would be to secure the assistance of a certified divorce financial analyst (CDFA) to help in drafting QDROs so that all specific requirements are met. Better yet, engage the CDFA early in the divorce process so you can start working out the civil service QDRO details before the MSA and/or divorce decree is signed.