845-638-4666 steven@abelqdros.com

{5:00 minutes to read} Recently I was consulted by two attorneys about how to handle a QDRO where the husband was already retired and the wife was still working. One of the things to note about this type of situation is that the pension that is already being paid out is not necessarily considered an asset anymore. Instead, it may be viewed as income.

The fact that it is income is important for the purpose of paying maintenance or alimony. In one case, the husband’s pension was substantially more than the wife’s part-time income. In the other case, the wife’s income as a teacher was much more than the husband’s income as a retired teacher.

In New York State, the maintenance guidelines could be used to calculate how much maintenance would be awarded in court, based on those income factors. The possible advantage to creating a maintenance obligation to be paid from the pension money is that you don’t necessarily need a QDRO to accomplish that. If the parties agree on a specific amount, the agreement could state that, making it legally binding.

In addition, the retired person can almost always direct the pension plan to make a direct deposit to the other party’s bank account. If this is done before the end of this year (12/31/2018), then the maintenance payment results in the same tax implications as payment through a QDRO. That means that the husband — in these cases — would deduct the maintenance from his income, and the wife would declare this income and pay the tax on it.

This is what happens when a QDRO is used, except that the pension plan will issue separate W-2 forms to each party, so they report their income under the W-2 instead of reporting it as maintenance and deducting it.

After 12/31/18, using this scenario might be a little bit more complicated. The additional factor of why to do it this way is that the parties might never need a QDRO, and thereby save the expense of the drafting. And if the paying spouse defaults on payment, the other spouse can then file a QDRO for enforcement of maintenance. The use of a QDRO to enforce maintenance or child support is not as commonly understood as a QDRO strictly for dividing the pension, but essentially it works the same way and has the same result in the end.

Certainly, it might be important to also include provisions dealing with how the amount to be paid from the pension would change upon the retirement of — in these cases — the wife. If she has a retirement account as well, the parties need to take that into account. If she does not have any retirement accounts, the agreement might provide for increasing the amount she receives upon her retirement. Lastly, it might be interesting to try to take into account Social Security income.

One of the peculiarities here, of course, is that there are different kinds of retirement plans. If the wife’s plan is a monthly pension, that needs to be taken into account later when she actually retires. The parties will very likely want to equalize their retirement income — or at least the marital portion.

If the wife’s retirement plan is a 401(k) or similar plan with a cash balance, then most likely the parties will want to use a QDRO to divide that plan.

Another interesting facet of this is there are situations where the parties want to stay married so as to maintain health insurance from the retired spouse’s plan. If the retired spouse is part of a government pension plan and they get divorced, which is necessary in order to submit a QDRO, then the health insurance is lost.

Using maintenance instead of dividing by QDRO has the benefit of maintaining the health insurance if that’s what the parties want to do. This consideration would apply if somebody has a corporate pension rather than a government pension.

If you have any questions about the role of a QDRO when one of the parties is already retired, please contact me at 845-638-4666.

Steven L. Abel, Esq.
101 South Broadway
Nyack, NY 10960
(P) 845-638-4666
(E) steven@abelqdros.com