As matrimonial lawyers, we often come across cases involving a pension that is subject to equitable distribution. While New Jersey’s equitable distribution statute involves several factors for consideration in dividing assets, the most common way by which a pension is divided is, in legal speak, “50/50 of the marital portion.” On its face, that seems easy enough, right? The Order that is required to divide the pension, usually known as a Qualified Domestic Relations Order (QDRO), however, contains so many paragraphs of technical language that litigants generally assume is boilerplate, when it is anything but.
In fact, the nuances can be such that lawyers often find themselves being disagreeable about provisions that they don’t even understand simply because it is easier to say “no” rather than take the risk that the division of the pension may be more equitable in favor of the other party. To that point, while divorcing spouses are usually of the mind that they are equally dividing what accrued during the marriage, they do not usually understand terms like “survivorship,” or “early retirement supplements,” or “vested” or “unvested,” and on and on. All they typically understand is that money will be paid out to them later in life from this asset.
That being said, if the goal is to really divide the marital portion 50/50 and ensure that each spouse gets his or her share, then why does this become such a heated discussion between lawyers. Other than the “just say no” mantra that I discussed above, there are so many perils and pitfalls that can come into play. I list a few of them here just as a guide for the unwitting, the unknowing, and, of course, the lawyers in the audience. This blog entry does not go into great detail on each of the following terms, risks and rewards, but it certainly a primer:
1. Accrued benefit – What is the accrued benefit? Usually the QDRO will provide a formula to determine what it is, so it is important to determine what will be considered, how long the participating spouse has been in the pension plan, when the alternate payee is eligible to receive pension payments, and so on and so forth.
2. Loans – Are there any pension loans? If so, how are those loans going to be divided – is the alternate payee’s (the spouse who was not in the participant in the pension plan) share going to be impacted?
3. Cost of Living Adjustments – Oftentimes the QDRO will provide that the alternate payee will receive a pro-rata share of any cost of living adjustments or other economic improvements made to the participant’s benefits.
4. Commencement date of the benefits to the alternate payee – Certain limitations on the alternate payee spouse’s ability to receive payments may impact upon her overall benefit. For instance, is the alternate payee limited to receiving benefits only when the participating spouse hits retirement age, or is there more flexibility afforded under the plan and the QDRO.
5. Early retirement subsidies, interim supplements, temporary benefits – I often hear other lawyers take the position that this is a negotiable issue. Ultimately, however, if the alternate payee is not entitled to this form of benefit, her payments could very well be negatively impacted should the other spouse retire early. In other words, the alternate payee would not be receiving the full benefit of the bargain contained in the settlement agreement within the inclusion of this form of payment.
6. Survivorship rights – Language regarding survivorship rights is perhaps the most important part of the QDRO. What happens to the alternate payee’s benefit if the participant dies before he retires? What about after he retires? Are the alternate payee’s rights to the pension secured, or is all lost once the participant dies? Oftentimes there is also a cost associated with ensuring survivorship payments in the form of an annuity. Who is paying? How much?
7. Death of the alternate payee – What happens if the alternate payee dies after he or she starts receiving payments? Does the benefit revert back to the participating spouse? Does it go to the alternate payee’s beneficiary?
These are just a few points to consider, and I cannot tell you how many times they come up in negotiation. Ultimately the alternate payee is simply looking to protect him or herself to ensure that the benefit agreed to in the settlement agreement is actually received, rather than reduced, lost, or whatever the case may be. In fact, considering the amount of argument that occurs between lawyers over some of these issues, it is almost as if the phrase “50/50 division of the marital portion” is nothing more than a misnomer.
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