What is a Qualified Domestic Relations Order?
Simply a court order, issued after a divorce, that splits retirement and pension plans between the two parties.
What IS a DRO? It's a Domestic Relations Order from the Court.. Eligible Domestic Relations Order for government employees and Qualified Domestic Relations Order for everyone else.
Why is a Domestic Relations Order necessary?
First, a pension is part of the marital assets (just like a bank account or IRA). This DRO court order is sent to the employer covering the pension plan so that they are aware that the pension is to be split at some point. The DRO puts the Personnel Department on notice that they must pay out two separate pensions and how the pension is to be split.
Don't Lose that Lifetime DRO Benefit
So many divorced spouses sign off on the pension benefit -- they worry about TODAY, with no care for TOMORROW. But if you are close to retirement, even ten years away -- LOOK and UNDERSTAND the pension benefit that you are forfeiting before you sign on the dotted line.
I really want to say -- Do NOT give up that pension benefit... even if it's years away! If this is your own benefit, and your spouse is willing to take another settlement (cash, the home, etc), consider the value and you might want to keep the pension to yourself.
Ditto - If your spouse has a Defined Benefit Plan, you are forfeiting a LIFETIME monthly pension benefit that would likely begin when they are first eligible to retire (even if they choose to continue to work).
Yes, I'm talking both sides of the fence -- this is a costly benefit and whether you can somehow keep your own benefit, or not give up the spouses benefit, I simply want you to know the value of the benefit.
Don't let an attorney make that decision for you. They get paid for every time you can't make a decision, every new argument, every time the case is postponed -- and they may or may not be looking at your best long-term interests.
Do your own homework - this is a major life-changing decision!
There are few defined benefit pensions left today.. look at the long-term value of that pension. It's a lifetime pension... that Domestic Relations Benefit at Divorce, regardless of the stock market, your health, or other factors -- a defined benefit pension plan guarantees a lifetime income. LIFETIME!
Calculate your Lifetime Domestic Relations Order Benefit
Let's say you were awarded 50% of a 10 year pension. This can make your life easier down the road... and you deserve it, you were married and that pension is part of the marital assets you "own".
For example here is one calculation (all pensions are calculated differently... you need to look at the specific plan you are under). This is only an example:
x 10 yrs of service
x $30,000 income =
$4,500/year for life.
50% of $4500/year = $2250/year.
$2250 divided by 12 months = $187.50 per month for life.
Ok... that's a small pension, right? No biggie... lets get a bit more from something else in the divorce, instead, and sign off on the pension itself. -- Not so fast!
$2250 per year at age 60 x 25 years (age 60-85) = $56,650 over 25 years.
Now you could live only 10 years after you begin to draw the pension, but you also might live to age 95!
Is the offer of "something else" worth more than a lifetime $187.50 per month? That depends on what you get... and that's the reason I'm asking you to think twice before you just forfeit a lifetime pension.
If you are in the midst of divorce and you have questions, write to me. I'm not an attorney, but I have worked through the retirement portion of lots of divorces. Maybe I can give you some idea on yours.... or maybe I can help you estimate your benefit to know whether its worth getting actuarial calculations (costly) or not.
How to Prepare a Qualified Domestic Relations Order
With most DRO's that I've worked with, the spouses attorney has the DRO prepared, then the employees attorney and employee review and sign off -- and then the DRO is court ordered.
U.S. Legal Forms also has DRO forms (which you can preview) if you'd like to do this yourself.
Don't FORGET to Send the DRO to the Employer!
Often, the parties are divorced, glad to get it all over and they never get the Domestic Relations Order done. Years later, maybe remarried, they have to hire attorneys and revisit the divorce and how to split the pension -- not a pleasant task.
IF the employer was never notified, the employee could actually retire and the ex-spouse never receives the pension.
DO IT NOW... yes, one more court fee, document fee, but then the certified document is done. The employer acknowledges receipt of the court order and all is well...
Best wishes!More Retirement Investment Planning...