Included in the property to be divided are retirement plans, pension plans, investments, stocks, bonds, etc. acquired during the marriage. In most cases, a divorced spouse will need a court order to collect on an ex-spouse's retirement income in the future. Another option is to calculate the present day value of the plan and offset it (trade) against another asset. For example, one spouse would relinquish any claim to the other spouse's retirement benefits in exchange for sole ownership of the home the couple lived in.

Dividing or valuing retirement plans can become extremely complex. There are many different types of plans with different interpretations of the law, requiring documents to be drafted in a specific way, and with different tax consequences.  For some plans, orders must be approved by the plan administrator, in addition to the Court, to be enforceable.  Because the issues can be complex, it is best to hire a family attorney to protect your rights and ensure the documents are properly prepared.

The information provided below is a broad overview of different methods by which retirement plans are divided.  Contact an attorney at Haas McNeil & Associates, P.A. for specific information about your situation.

A Domestic Relations Order (DRO) is used for state government plans, such as teachers, state employees and local government retirees.

A Qualified Domestic Relations Order (QDRO) is used for ERISA (Employee Retirement Income Security Act of 1974) retirement plans such as Tax-Deferred Saving Plans, and most large companies' 401(k) or pension plans.

Court Order Acceptable for Processing (COAP): Sometimes referred to as a Qualified Court Order, these orders are used for Federal Government employees who are members of either the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Examples: employees of the Postal Service, Federal Aviation Dept., civilian employees on military bases, etc.

When a Court Order Acceptable for Processing is drafted, monthly benefits will be paid to the Alternate Payee (ex-spouse) when the Participant/Employee retires, and will continue being paid for the lifetime of the Participant/Employee. If the Alternate Payee (ex-spouse) is entitled to a Former Spouse Survivor Annuity (agreed upon by both parties or court ordered), the monthly annuity will start when Participant/Employee dies and continue for the life of the Alternate Payee (ex-spouse).

Military Pension Division Order (MPDO):The Military Retirement System provides benefits to members of the uniformed services. Examples: Army, Air Force, Navy, Marines, Coast Guard, Reserves, National Guard, Public Health Service, and the National Oceanic and Atmospheric Administration. The Uniformed Services Former Spouses Protection Act lays out requirements for a MPDO.

DRO's and QDRO's are the most common types of orders used in the equitable distribution of retirement benefits.  A DRO or QDRO is a court order which instructs the plan administrator to pay an Alternate Payee (the former spouse) a portion of retirement benefits accrued by the other spouse. Each type of plan has its own guidelines and methods for distributing benefits. Below is a discussion of the various types of plans, and the manner in which they will distribute benefits between divorcing parties.

ERISA  (Employee Retirement Income Security Act of 1974) Defined Benefits Plans:
A private retirement plan set up by a company, union or person that provides a Participant/Employee with a monthly income for life upon retirement. Examples: IBM Retirement Plan, AT&T Pension Plan, Nortel Retirement Plan.

When a QDRO is drafted for an ERISA Plan, benefits may be paid to the Alternate Payee (ex spouse) when the employee/participant (other spouse) reaches  earliest retirement age or when he/she actually retires or at any time in between (dependent on the order). The benefit is distributed in monthly payments for either the lifetime of the Participant or the Alternate Payee (depending on how the order was written).

ERISA Defined Contribution Plans:
This is a private, tax-deferred savings plan set up by a company, union or person that will provide an income to a participant/employee upon retirement. Examples include any Thrift Savings Plan, Profit Sharing Plan, or Employee Stock Ownership Plan sponsored by a company, such as a company 401(k) Plan that the employee contributed to.  Regardless of whether the company matched the contribution.

Because these plans have an actual value at any given time, benefits may be paid in a lump sum payment to the Alternate Payee (ex-spouse) immediately, when the Participant/Employee reaches his/her earliest retirement age, or at any other time as permitted by the plan.
 

Read North Carolina law regarding Equitable Distribution and retirement plans.