If you and your spouse divorce while one or both of you is vested in a public or private retirement plan, 401(k) plan, Profit Sharing Plan, Employee Stock Ownership Plan, Keogh or Tax Sheltered Annuity (called simply "retirement plans" here) AND you have agreed to divide one or more of those retirement plans between you, you will often need what is called a Qualified Domestic Relations Order (QDRO) (kwa-dro) to divide each plan. A normal divorce judgment cannot accomplish that division because the pension plan is not a party to your divorce. The divorce court has no jurisdiction over the plan, so the court can't order the plan to do anything.
If one of you has a public retirement plan (state, federal or military - including CalPERS, CalSTRS, UCRS, CSRS and FERS), the additional court order required is called just a Domestic Relations Order (DRO),
different but similar to a QDRO.
You can determine easily whether your particular retirement plan requires a QDRO or DRO to divide by contacting the plan administrator and simply asking if you need one of these types of court order to divide the plan.
The first thing to understand is that if one or both of you are vested in a retirement plan but you are NOT going to divide any of those plans or assign one spouse's retirement plan to the other spouse, this doesn't affect you. So
if you are vested in a plan and you and your spouse have agreed that you will get all of that plan in which you are vested and/or your spouse is vested in a plan and you and your spouse have agreed
that your spouse will get all of that plan in which he or she is vested, then all you will need is your divorce judgment because you are not legally dividing any plan. The employee spouse who is vested in each plan is the spouse who will receive all future benefits of that plan, including
any survivor's benefits payable at the death of the vested spouse. You won't need a QDRO or DRO. A divorce judgment can state that an entire retirement
plan is awarded to either one of you, providing that spouse is the employee spouse or participating spouse. It cannot divide a retirement plan between you or award the employee spouse's vested plan to the non-employee spouse.
The second thing to understand is that this does not affect IRA's (including Roth IRA's) at all. IRA's are not true retirement plans. They can be divided by a divorce judgment.
Thirdly, this has nothing to do with Social Security benefits. They are personal benefits governed by federal law. They are not community property to begin with.
NetDivorce handles only divorce. NetDivorce does NOT handle DRO's or QDRO's to divide retirement plans. These additional orders are complex, specialized, time-consuming and fairly expensive. Depending on the plan, you will often have to sue the pension plan administrator to join the plan as a party to your divorce action. NetDivorce will refer you to a
QDRO/DRO specialist in your area if you need a QDRO/DRO.
The other factor to consider is time. There is a definite time factor in obtaining your QDRO/DRO. While NetDivorce prepares paperwork that leaves the door open for your QDRO/DRO and puts the pension plan administrator(s) on notice that a QDRO/DRO is coming, you should obtain your QDRO/DRO at the same time as you obtain your divorce. The reason for this is
that the non-employee spouse can lose survivor's benefits under the plan if the employee spouse dies between the time of divorce and the time of obtaining the QDRO/DRO. There are other similar time considerations as well. Do not delay in obtaining a QDRO/DRO if you need one.
Finally, you may also want to consider trading off on a division of a retirement plan so as to avoid the requirement for a QDRO/DRO altogether. This means that the employee spouse under the retirement plan may consider relinquishing some other asset(s) or paying some other
debt(s) in exchange for retaining the entire interest in his or her plan. Obviously, this is not so easy to do if the retirement plan is a couple's most valuable asset.
Valuation is also a problem. It is difficult to place a value on future retirement benefits even if you hire a retirement plan valuer. If you don't hire a valuer, it will be almmost impossible for you to know
the current value of a future interest in a retirement plan for you to be able to know whether your agreed trade-off on other assets and debts is fair or not. Bear in mind also that retirement plans are pre-tax. When the benefits begin to be paid, tax is due. So such pre-tax benefits are often difficult to compare and trade off with other post-tax assets.
Be careful. This is a dangerous and expensive area of divorce. Hence this special warning.