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Every judgment of divorce must determine the rights of the parties to any pension, annuity, or retirement benefit pursuant to Michigan statutory law. Retirement benefits can be divided in two ways. First, they are divided through the offset method. This method gives the nonemployee spouse nonretirement assets equivalent to her/his interest in the other's pension. The second way the benefits are divided are though the deferred division method, which gives the nonemployee spouse an interest in the employee spouses pension. The best method is decided by the facts and circumstances of the individual case. A QDRO, qualified domestic relations order is a State Court Order that must be honored by retirement plans governed by ERISA (Employee Retirement Income Security Act) and the IRC (Internal Revenue Code). A domestic relations order is a judgment, decree, or order made pursuant to Michigan domestic relations law that relates to the provision of child support, alimony, or the property rights. A domestic relations order is qualified if it clearly specifies (1) the name and mailing address of the participant and alternate payee, who is recognized by the order as having a right to benefits, (2) the amount or percentage of the participant's benefit to be paid to each alternate payee or how it is to be determined, (3) the number of payments or the period to which the order applies, and (4) each plan to which the order applies. A domestic order is not qualified, if it requires (1) the plan to provide any type or form of benefit or any option not otherwise provided by the plan, (2) the plan to provide increased benefits, or (3) the payment of benefits to an alternate payee who is required to pay such benefits to another alternate payee under a previous qualified order. These are the minimum requirements of QDRO. Many things may be awarded to an alternate payee through these benefit programs. The QDRO must specify the amount or percentage of the participant's benefits to be paid by the plan or how the amount or percentage is determined. It is very important that the drafting attorney spell out the non-employee spouse's entitlement under the QDRO. Quite often, the employer will be hostile to the drafters and make obtaining an order “qualified” very difficult. An alternative payee could be awarded a benefit through a defined contribution plan. A defined contribution plan's division is the interest assigned to an alternate payee which is generally stated as a percentage or dollar amount of the participant's vested account balance as of a particular date. In a defined benefit plan, the alternate payee's interest is commonly stated as a percentage or dollar amount of the participant's vested monthly accrued normal retirement benefit as of a certain date. Sometimes, the marriage is shorter than that of the period of participation. In these cases, the attorney may consider limiting the alternate payee's benefits to the ones that accrued during the marriage. Many defined benefit pensions provide for pre-retirement, post-retirement and cost-of-living increases. When an alternative payee is awarded an interest in a participant's retirement benefits, the QDRO provisions do not automatically provide that an alternative payee share of these benefits. Your attorney should make sure that the QDRO does contain a clause that allows for the alternative payee to share in the increases. The clause typically will award a portion of each increase to the alternate payee in the proportion to the benefit awarded under the QDRO. Early retirement subsidies are another way that provide benefits to the alternative payee. An early retirement subsidy includes the amount the participant receives at early retirement above and beyond the actuarial equivalent of his or her normal retirement benefits. There are provisions that can be stated in a QDRO that allow the alternate payee to share in the early retirement subsidy, if the participant retires early. Under the retirement plans, the alternative payee may begin to receive the interest under the plan when the employee spouse begins to receive benefits under the plan. The alternative payee may receive the interest in any form or option provided by the plan, with the exception to this general rule that provides that an alternative payee may not share any interest under a qualified joint and survivor annuity with a subsequent spouse. Typical payment forms include a joint and survivor annuity with the participant, a single life annuity over the participant's or alternative payee's lifetime, or a lump-sum distribution. An EDRO is a Deferred Division for State and Local governments. The Eligible Domestic Relations Order (EDRO) allows for the deferred division of state and local government retirement benefits between spouses. The EDRO Act was enacted in response to problems spouses encountered while attempting to divide a public sector retirement benefit. EDRO pertains to all local, state, or federal chartered retirement plans. Like QDRO's, to be eligible for the EDRO retirement system, a domestic relations order must meet certain requirements. Under the EDRO plan, the alternative payee may start receiving benefits under the plan, when the participant starts receiving benefits, or the earliest retirement date. The EDRO Act provides that the alternate payee may receive the benefits as a single life annuity over alternate payee's life, a single life annuity over participant's life, or a joint and survivor annuity over joint lives with a survivor annuity payable to the surviving spouse. When divorcing, each party should take a look at their Federal Retirement Plans. For example, Social Security. The Social Security Act contains provision establishing a federal scheme under which divorced spouse of an insured may become entitled to old-age, disability, survivors, and parents benefits under the act. The spouse is entitled to the divorced spouse's Social Security record if the worker is entitled to retirement or disability benefits, the spouse has filed an application for divorced spouse's benefits, the spouse is not entitled to a retirement or disability benefit based on primary insurance amount that equal or exceeds one half of the worker's primary insurance amount, the spouse is age 62 or older, the spouse is not married, and the spouse was married to the worker for 10 years before the divorce became final. It is important to remember that State courts do not have the authority to dispose of Social Security benefits in divorce proceedings except for child support obligations or spousal support obligations due, in which instance a division can be accomplished. A division can be accomplished to even out Social Security benefits by and Order calling it spousal support, having it paid to the Friend of the Court, and having it taken from the payor's benefit by an order of income withholding. There are many other Federal Retirement programs that may entitle you to benefits of the divorced spouse. Each plan has its own provisions and requirements to be followed. Examples of those other programs are Railroad Retirement Act, Uniformed Services Former Spouses Protection Act, and Civil Service Retirement and Federal Employees Retirement. It is important to know what is included in each plan and what is needed to be done to receive those benefits.
-- Butler, Durham & Toweson, Attorneys at Law |