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Property Distribution in Divorce – Federal Pensions

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Family in need of attorney

The Gainesville – Ocala Family Law Attorneys of the Law Office of Alba & Yochim P.A. discuss the matter of Property Distribution in Divorce cases involving Federal Pensions. When the issues associated with a dissolution-related family law proceeding are resolved, this resolution is reduced to writing in what is commonly referred to as a domestic relations order.

As defined by the Internal Revenue Code (IRC), and other federal provisions:

A domestic relations order is a judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law (including community property law) and that relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant. Reference: ERISA §§ 206(d)(3)(B)(ii), 514(a), 514(b)(7); IRC § 414(p)(1)(B)

Proceedings involving specific distribution issues, such as retirement plans, however, are unique, in that the domestic relations order must also meet qualification standards. As provided under federal law,

A “qualified domestic relation order” (QDRO) is a domestic relations order that creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a portion of the benefits payable with respect to a participant under a retirement plan, and that includes certain information and meets certain other requirements. Reference: ERISA § 206(d)(3)(B)(i); IRC § 414(p)(1)(A)

Whether an issue of property division involves a private retirement plan, or federal pension plan, consultation with a lawyer is recommended to ensure that the provisions included within an order are addressed in a proper manner. Federal pensions, in particular, require the careful attention and specialized knowledge of an attorney with the specific experience in the equitable distribution of such plans. It is important to consider the legal effect in terms of enforceability under applicable provisions of state and federal law. However, the parties should consider the financial effect of the distribution method used. In discussing these two dilemmas, Financial Analyst Timothy C. Voit points out,

“In many cases, we have seen settlements between divorcing parties mishandled because it was assumed that the employee contributions into these defined benefit plans represented the lump-sum present value, or that dividing these plans pursuant to a Court Order was similar to dividing them by way of a Qualified Domestic Relations Order (QDRO). Worse yet, we have seen cases where the parties, or their attorneys, assumed that certain municipal retirement plans, those not covered under a state retirement system, could be divided by a QDRO when, in fact, some of these municipal plans cannot be divided by any type of Court Order for purposes of property division. Needless to say, these cases had to be reopened or the Settlement Agreements amended. Unfortunately, this is not as rare as one would hope.”

Another important consideration, as Mr. Voit also references, is the employment status of the participant spouse at the time of the distribution. Proper valuation requires a discovery approach based upon whether the participant spouse is still employed, or has already retired. Inquiries requesting income figures for computation purposes that are directed at inappropriate entities, creates a risk for inaccurate calculations, therefore undermining the goal of equitable distribution.

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Given the complexities involved in retirement distributions, many attorneys use expert legal support services, which, as Mr. Voit states, have developed “due to the overwhelming demand from Attorneys and the Courts for more expertise, competence, and realism, when valuing pensions, drafting QDRO’s, and dealing with investment related issues.” The Gainesville attorneys of the Law Office of Alba & Yochim P.A. have developed relationships with legal support services providers like real estate and retirement account valuation experts to ensure that your financial interests are protected.