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DOMESTIC RELATIONS ORDERS

Survivor Benefits – Alimony & Child Support Arrearages

SHARED PAYMENT QDRO

PART TWO

Clarification.

This article is limited to Defined Benefit Retirement Plans. [1]

Shared Payment QDRO, Explained.

The attorney understands that unlike the Separate Interest QDRO (see Part One), in which the Alternate Payee has discretion as to the time to commence benefit payments, with a Shared Payment QDRO the Alternate Payee will not receive any payments unless the participant receives a benefit or is in pay status.

Further Explanation.

The fact that the Shared Payment QDRO does not become effective until the participant is in pay status, does not mean that a Shared Payment QDRO cannot be prepared prior to or subsequent to the participant's retirement. To the contrary, it can be prepared and Qualified at any time, but it will not take effect until the participant is in pay status.

Further Explanation.

The attorney representing Former Spouse is concerned with the death of the participant prior to her or his retirement. Not a problem! The informed attorney representing an Alternate Payee avoids loss of benefits to the Alternate Payee by also providing for a Qualified Preretirement Survivor Annuity (QPSA) and the Joint and Survivor Annuity subsequent to retirement. Once the Alternate Payee is awarded the QPSA, the death of the participant prior to retirement does not cause loss of benefits to the Alternate Payee.

Multiply Use QDRO.

Unlike the Separate Interest QDRO whose primary purpose is the division of marital property incident to divorce, the Shared Payment QDRO has a broader ambit regarding settlements incident to divorce.

Obvious Use.

Division of Pension Benefits Incident to Divorce

Less Obvious Use.

Enforcement of Alimony and or Child Support Arrearages.

Division of Pension Benefits Incident to Divorce.

Payment of Benefits to an Alternate Payee. In a Separate Interest QDRO the benefit itself is divided between the spouses. In a Shared Payment QDRO the benefit is not divided. Rather the payments to the Retiree are shared. The Alternate Payee receives a portion of the monthly benefit paid to the retiree. The percent of the benefit that may be shared with an Alternate Payee from an ERISA Plan ranges from 1% up to 100% of the benefit payable.

As with a Separate Interest QDRO, the Shared Payment QDRO must specify the amount or percentage of the participant's benefit payments that are assigned to an Alternate Payee.

Alternate Payee Defined.

The term "alternate payee" means any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant. [2]

Special Language for the Shared Payment QDRO.

This form of Order must also specify:

Number of payments to be made to an Alternate Payee or

Period (of time) to which this Order applies. [3]

Alimony and Child Support Consideration.

Since these payments are not for the lifetime of the retiree it is essential that the Shared Payment QDRO clearly delineate when payments to this Alternate Payee begins and ends.

For example:

  • Requires that payments to an Alternate Payee begin as soon as possible after the order is determined to be a QDRO and to continue until the Child (Alternate Payee) reaches maturity (child support QDRO). [4] The "maturity" point must be definitely determinable (e.g. a date certain) or require documentation acceptable to the Plan Administrator (e.g. a subsequent Domestic Relations Order). [5]
  • When the payments are to a Former Spouse, the order might state that payments to this Alternate Payee terminate upon the remarriage of the Former Spouse.

Drafting Guidance:

If payments are to end upon the occurrence of an event, notice and reasonable substantiation that the event has occurred must be provided to the Plan's Administrator in order for the plan to be able to comply with the terms of the QDRO. [6] The attorney representing the Employee Spouse must be certain prior to her or his "sign off" that the party responsible for this notice to the Plan's Administrator is fixed and fully understood.

Drafting Caution.

When the Alternate Payee is awarded a specific monthly benefit, care must be taken when inserting language into the Domestic Relations Order. The attorney representing the Employee Spouse will avoid use of percentages in designating the award to the Alternate Payee. Rather, this attorney will specify the precise monthly amount that represents the "Shared Payment Award" of this Alternate Payee.



[1] More specifically, it is limited to "Qualified" Defined Benefit Plans, i.,e. Plans subject to ERISA.

[2] 26 U.S.C. 414(p)(8).

[3] For alimony or child support arrearages payments will not be for the lifetime of the Alternate Payee.

[4] At the time of divorce this "Child" was a dependent of the participant. Any child who is not a "dependent" of the participant is ineligible since she or he would not be a "Qualified" Alternate Payee.

[5] "Acceptable Documentation", is subjective. It must be ascertained by reference to the Plan Administrator's Guidance.

[6] In many instances the safest course is to issue and amended and superseding Domestic Relations Order.