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Shared Interest or Separate Interest?

The decision of whether a pension should be divided using a shared interest or a separate interest is critically important, affecting each party’s future financial security. This decision is usually only involved in defined benefit pensions (which provide monthly payments). It is very rarely a choice for a defined contribution plan, like a 401(k).

Civil service pensions (Federal, state and local government plans) and military pensions do not allow separate interests. Only shared interests are involved in government plans. For all practical purposes, a separate interest is only available in pensions provided by large corporations or unions.


The separate interest creates rights for the alternate payee (the spouse who is not the participant of the retirement plan) that are separate from the eventual payment to the participant. Basically, the plan administrator creates a new account for the alternate payee, using part of the participant’s benefit. The alternate payee’s separate payment adjusts for his or her life expectancy. He or she can receive his or her payment whenever the plan would allow, most importantly regardless of whether the participant keeps working or retires.

The key result is that the alternate payee is not required to wait until the participant retires. The alternate payee continues to receive his or her payment until the alternate payee’s death, even if the participant dies first. Under this separate interest approach, the participant has the freedom to elect whatever payment method he or she prefers under the plan rules with no restrictions caused by the QDRO. The alternate payee typically only receives payments for the remainder of his or her life. Depending upon the QDRO language, the alternate payee may receive increases to the extent the participant receives them. These increases are divided and applied to the separate interest according to the QDRO.


The shared interest approach to dividing a retirement account does not establish a separate payment for the alternate payee. Instead, the alternate payee gets a share of any payment owed to the participant in accordance with the terms of the QDRO. Under the shared interest approach there is no payment carved out and set aside for the alternate payee. Instead, when the participant retires and begins receiving his or her pension, the plan will pay the alternate payee a portion of each payment for as long as the participant is alive and receiving payments. Under the shared interest approach the alternate payee must wait until the participant decides to retire and begin taking payment from the pension plan. In a shared interest approach there is no free-standing payment set aside for the alternate payee. That means if the alternate payee dies before the participant elects to receive payments the alternate payee no longer has a right to payments under the plan. The participant will see no reduction in his or her periodic payments. He or she becomes free from the restrictions of the QDRO regarding pre-retirement survivor benefits and payment options.

Typically, under this approach, the participant is restricted in his or her pension options. Usually, the QDRO will require the alternate payee to receive any pre-retirement survivor annuity so that the alternate payee will receive a share of the payment for the rest of the alternate payee’s life should the participant die before retirement. If the participant dies before receiving his or her payment then it is usually not payable to anybody else, aside from a pre- retirement death benefit. So the participant’s premature death could otherwise deprive the alternate payee of any payment. The QDRO also typically requires the participant to elect payment in a joint and survivor annuity. Under this option the alternate payee receives payments after the participant’s death. This ensures the alternate payee will receive his or her share for the remainder of the alternate payee’s life, if the participant dies first. There is no room for a new spouse to come in and become the participant’s beneficiary or receive survivor payments. The QDRO orders the plan administrator to treat the alternate payee as the spouse for plan purposes. Any subsequent spouse is out of luck. Unlike the separate interest approach, the shared interest approach gives the participant some continued control over the property division in the divorce. The participant retains control over when the alternate payee can ever see money from the pension plan.


For 401(k) plans, ESOPs and other defined contribution plans almost everyone uses a separate interest approach. The assets in a defined contribution plan typically divide easily without complex formulas or future payment dates. The separate interest approach to a defined contribution plan will either make a payment of a specific dollar amount to the alternate payee or a percentage of the participant’s assets and set them up in a new account under the plan for the alternate payee and then let the alternate payee decide when to cash it out.

However, there are times where a shared interest approach can make sense. Some defined contribution plans have unusual investment structures that make division difficult or the alternate payee may want to ride out the participant’s investment skills and take payment down the road. Some defined contribution plans also pay the participant on a periodic payment structure so the alternate payee may have no choice but to take a shared interest approach. These uses of the shared interest approach are the exception, rather than the rule, in defined contribution plans. Normally the alternate payee will benefit from immediate payment or at least immediate division of the participant’s payment. This way the alternate payee has equal access to make investment decisions.


The question of whether a separate interest or shared interest approach is best for an individual is highly specific to that individual’s interests. The two parties may have opposing interests in the retirement assets. What is best for one spouse may not be best for the other. It is increasingly less common to find parties drafting shared interest QDROs. The simplicity of dividing the pension payment up front and letting each party control their respective portion makes the separate interest approach attractive for both sides. Typically there should be a very specific reason why the parties implement a shared interest approach over a separate interest approach to avoid the restrictions on both parties that occur under a shared interest approach.

Among the reasons for adopting a shared interest approach is when the alternate payee is terminally ill. This can be an also be important consideration when the alternate payee is much older than the participant. Under the shared interest approach the participant recovers the alternate payee’s share when the alternate payee pre-deceases. If the alternate payee deceases before any payments issue then the participant is free from the QDRO.

In the same scenario under a separate interest approach, there is no reversion to the participant. There is no survivor payment for the alternate payee. So the separate interest approach can be a windfall for the participant’s employer and may not benefit either party. Or, if the participant is likely to die first then the alternate payee may receive a windfall under a shared interest. That may be a reason to adopt that approach. If the QDRO gives the alternate payee the pre-retirement survivor annuity and a post-retirement survivor annuity (by requiring a joint and survivor annuity) then the alternate payee may gain a larger share of the payment. The reason is that in many situations the alternate payee receives less than 50% of the retirement payment; but the pre-retirement and post-retirement survivor annuities usually pays 50% of the total retirement payment. Pension plan administrators typically do not divide these survivor payments. The alternate payee who may have only received, for example, 30% of the normal pension payments may receive an additional 20% (30+20=50%) upon the death of the participant. This is among the reasons why participants usually do not prefer the shared interest approach.


The shared interest approach can also make the division easier when the pension plan provides the participant with cost of living adjustments (COLA) or other increases unrelated to accrual of further payments under the pension plan. A shrinking number of pensions provide these types of increases. Not all plans make it easy to draft a QDRO that captures increases for the alternate payee’s separate interest. By following the shared interest approach it can be easier to capture those increases for the alternate payee.

These reasons are usually not compelling enough to select the shared interest approach over a separate interest approach. In most cases the simplicity and flexibility of the separate interest approach is better overall. Generally tying the alternate payee’s payment to the participant is not worth the challenges of the shared interest approach.


One reason to adopt a separate interest approach is freedom for the alternate payee to receive payments any time after the plan (and QDRO) permits. A problem with shared interest is when the alternate payee needs payments but cannot obtain payment until the participant retires. The alternate payee cannot force the participant to retire or elect to receive payments. That can put the alternate payee in a real bind.

Another problem with a shared interest QDRO is when it is not filed and qualified before the participant retires and elects payments. The biggest problem is when the participant elects to receive pension benefits and elects a payment option with a new spouse as the survivor. ERISA (the federal law governing pensions) overrides the belated QDRO and preserves the rights of the named beneficiary (the new spouse) over the divorce court’s order to name a different beneficiary (the former spouse as alternate payee).

This means the alternate payee gets little or nothing. This is only a problem when the alternate payee is slow to present a signed order to the plan administrator. Most importantly, this is one of the reasons why QDROs should be completed as part of the divorce process.




  • Adjusts the amount of the payment to be paid over the expected lifetime of the Alternate Payee rather than the Participant’s expected lifetime.
  • “Post-retirement” survivorship language for the benefit of the Alternate Payee is not required, because he or she is automatically guaranteed a lifetime of payments.
  • It is still necessary to include “pre-retirement” survivorship language to secure the Alternate Payee’s right to payment in the event of the Participant’s death before retirement.
  • The Alternate Payee can choose to begin receiving payments at a different time than the Participant.
  • If the Alternate Payee is much younger than the Participant, this approach is not favorable.
  • If the Alternate Payee predeceases the Participant, the payments stop.


  • Payments are based upon the expected lifetime of the Participant.
  • Must have pre- and post-retirement survivor language in the QDRO to secure the benefit for the Alternate Payee in the event that the Participant dies first.
  • Only method allowed if the Participant has already retired.
  • In the event that the Alternate Payee predeceases the Participant, the payment usually reverts back to the Participant.
  • Participant must begin receiving payments before the Alternate Payee may receive payments.
  • If the Alternate Payee is younger, he or she will receive more money using this method since the payment is actuarially based on the Participant’s life expectancy.