Division of Retirement Plans in California Divorce and the QDRO

So, your divorce is final, the house has been sold, and you’ve reached agreement with your former spouse regarding custody, visitation and support of your children together. You’re done, pour the champagne and launch the fireworks… or not?

If your Judgment of Dissolution includes the division of retirement and/or pension accounts, you may not be done after all.

1020934_29278712-thumbEmployee Retirement Income Security Program or ERISA for short (29 U.S.C. Chapter 18). If the retirement plan in question falls under ERISA (also called a “qualified plan”), then your Judgment of Dissolution may not be sufficient to protect the interest of the non-employee spouse.

This is one of those times that it helps to understand the relationship between California law and federal law. The Supremacy Clause of the United States Constitution requires that state laws must yield to federal laws whenever the United States Congress creates laws as permitted by its delegated powers.

Practically what this means with respect to these “qualified” retirement accounts is that you must obtain two orders from the family court: the first order (generally the Judgment of Dissolution) defines the community property rights of each party in that particular retirement account. The second order is called a Qualified Domestic Relations Order, or QDRO (pronounced “quad-row”) for short. The QDRO is a specialized order from the family court that complies with all of the requirements in the federal ERISA law to actually make the division of the retirement account happen. QDROs are highly specialized orders that are best prepared by an attorney familiar with ERISA requirements as well as with the retirement plan’s own unique requirements.

The consequences of failing to prepare and serve an appropriate QDRO on the retirement plan are serious. The non-employee spouse may lose out on survivor benefits, or may have to pay substantial taxes on his/her retirement distribution, or may under some circumstances lose ALL of his/her interest in the retirement plan. Make sure that you don’t simply file your Judgment away in a file cabinet if retirement plans are to be divided, but instead move forward immediately with the preparation of the necessary QDROs to ensure the plans are properly divided between the parties. I generally suggest that the QDROs be prepared at the same time as the Judgment and not left until afterwards.

For more information about the division of retirement accounts, community property and other California family law issues, please contact attorney Gary D. Sparks.