Do I have to share my pension?
Yes. You do have to share your pension if you acquired any part of the pension after the date of marriage and before the date of separation. You do not have to share the pension if you acquired it prior to the date of marriage or after the date of separation. Specifically, you have to divide the portion acquired during marriage equally because retirement benefits are a form of employment compensation, like earnings. Retirement benefits are subject to division in marital actions, regardless of whether they are (1) benefits being received; (2) benefits that are matured but are not being received; or (3) benefits that are not matured.Generally speaking, there are two types of Retirement Plans:
- Defined Benefit Plans – retirement plans contributed to solely by the employer and not the employee. It is usually necessary to value these with an actuary. An example of a defined benefit plan is a corporate sponsored pension. Defined Benefit Plans may be divided by either a 1) present in kind division or an (2) asset distribution “cash out” method. The valuation of Defined Benefit Plans is generally based on employees age at retirement, years of service at retirement, and highest income level achieved.
- Defined Contribution Plan – retirement plans contributed to by the employer as well as the employee. These can be valued by reviewing the retirement plan statement at the date of separation. An example of a defined contribution plan is a 401K or an IRA.
When there is a community property interest in an employee benefit plan, it may be advisable or necessary to join the plan as a party to the marital action to protect the non-employee spouse’s interest. California statutes provide that no order or judgment in a marital action is enforceable against an employee benefit plan unless the plan has been joined as a party to the proceeding.
Some employer sponsored plans can be divided by the Judgment of Dissolution or other regular order of the Family Court. Corporate defined benefit plans and some defined contribution plans, however, are controlled by federal law – The Employee Retirement Income Security Act (“ERISA”). ERISA established a comprehensive federal regulatory program governing all private qualified employee pension plans. However, the Court can not make orders expanding the plan benefits.
ERISA superceded all state laws insofar as they concern private pension plans. However, ERISA does not (1) preempt California community property law or (2) prohibit a California court in a marital action from ordering a benefit plan to pay a portion of a participant’s benefits to a former spouse, (3) preempt state law which provides for joinder of a benefit plan (4) require joinder of a benefit plan in marital actions. ERISA provides that an order or judgment dividing the community interest in a pension plan is binding and enforceable against the plan as long as the order or judgment is a qualified domestic relations order (“QDRO”). ERISA pre-empts State court orders. Therefore, a Family Court domestic relations order, in order to have any effect in dividing assets of these plans, must “qualify” under the requirements of ERISA. If the order qualifies, it is called a QDRO. Whether or not a QDRO qualifies under ERISA is determined by the plan administrator
All plans are not governed by ERISA. For example, state and local government employees’ retirement plans are not. Two examples of government retirement plans are CALPERS and CALSTRS. Although these plans are not governed by ERISA, they still must be divided.
If you do need a QDRO, it is advisable to have your family law attorney ensure that the QDRO is prepared prior to the entry of the Judgment. The QDRO should set forth the terms for the division of the pension that you and your spouse agreed to even if the language is set forth in your judgment. There are several problems with reserving on jurisdiction (not promptly preparing the QDRO) including but not limited to the risk that one of the parties might die prior to entry of an order dividing the benefits or the possibility that when the time arrives for dividing the asserts, one of the parties may be reluctant or even unavailable.
In the United States Supreme Court case Kennedy v. Plan Admin. (2009)129 S. Ct. 865, the Court held that although Wife divested herself of all right, title, interest and claim in and to Husband’s retirement benefits in the dissolution judgment, it was not required to be approved by the plan administrator because no QDRO was prepared directing the plan administrator that Wife was waiving her interest in said plan. As such, after husband’s death, despite the parties negotiated agreement that she would be waiving all interest in said, Wife received the interest in Husband’s retirement benefits against the wishes of Husband’s estate. Id.
By Megan E. Green
This FAQ was first published in Divorce Magazine and is reprinted with their permission.