Employment and Retirement Benefits
§ 25.1Complexity of Drafting Orders
Drafting orders for the division of retirement and other such employee benefit plans is a complex undertaking. Generally, an order in addition to the decree is needed to divide the benefit. For plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), this order is a qualified domestic relations order (QDRO), but it may have a different title if it is for a non-ERISA plan. No single set of rules controls the division of these plans, and no simple form order can be used for all plans. Many types of plans exist; each must be approached on the basis of the particular rules and terminology that control it, which are found either in the plan documents or in the statutes and regulations governing the type of plan involved. Division of an individual retirement account (IRA) or a nonqualified plan does not require an order separate from the decree of divorce, and care must be taken when dividing the benefit and drafting the applicable decree language. However, some IRA providers may want an additional order or assignment of interest.
These practice notes concentrate primarily on the division of retirement, employee benefit, and other plans, which are usually incident to employment of some sort, as an aspect of property division on divorce. There is some discussion of various attributes of the plans, but the emphasis is on the rules of division, the benefits that may be divided, and the orders required to accomplish the division.
Parts X and XI discuss the use of domestic relations orders for payment of spousal maintenance and child support, respectively.
[Sections 25.3 through 25.10 are reserved for expansion.]
II. Retirement Benefits Divisible on Divorce
§ 25.11Divisibility on Divorce
The general rule is that the part of a spouse’s retirement benefits earned during the marriage constitutes community property subject to division in a divorce. Allard v. Frech, 754 S.W.2d 111, 114 (Tex. 1988); Berry v. Berry, 647 S.W.2d 945, 946 (Tex. 1983); Valdez v. Ramirez, 574 S.W.2d 748, 749 (Tex. 1978); Taggart v. Taggart, 552 S.W.2d 422, 423 (Tex. 1977); Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976); Herring v. Blakeley, 385 S.W.2d 843, 846 (Tex. 1965). These benefits should be valued on the date of divorce. Berry, 647 S.W.2d at 947.
As with other assets, retirement benefits may have mixed character, and a party claiming that part of a retirement account constitutes his separate property must prove such separate-property character by clear and convincing evidence. See In re Marriage of Cruey, No. 09-21-00125-CV, 2022 WL 3905766 (Tex. App.—Beaumont Aug. 31, 2022, no pet. h.) (mem. op.) (husband’s testimony alone was insufficient to prove claim of separate property portion of husband’s retirement benefits by clear and convincing evidence); see also Kelly v. Kelly, 634 S.W.3d 335, 351–52 (Tex. App.—Houston [1st Dist.] 2021, no pet.) (trial court’s finding that all of husband’s 401(k) account was community property was error; although husband did not introduce any account statements into evidence, testimony of his expert regarding expert’s tracing analysis of the separate property portion of husband’s 401(k) account was sufficient to rebut community-property presumption where wife presented no evidence to the contrary). If it is undisputed that a spouse owned part of a retirement account prior to the marriage but the account has grown during the marriage, the spouse must prove the value of the portion owned at the time of marriage by clear and convincing evidence. Otherwise, the community-property presumption controls. Sanchez v. Wales, No. 05-20-00485-CV, 2022 WL 1055376 (Tex. App.—Dallas Apr. 8, 2022, no pet.) (mem. op.).
Although retirement benefits should be valued on the date of divorce, the portion to which an employee’s former spouse will be entitled can change after the divorce, if the employee later becomes eligible for a new benefit as a result of his or her employment during the marriage. See Howard v. Howard, 490 S.W.3d 179 (Tex. App.—Houston [1st Dist.] 2016, pet. denied). At time of divorce, the husband in Howard would have been entitled only to reimbursement of his payroll contributions to his retirement plan, because his interest had not yet vested. The decree of divorce awarded the wife a portion of “all sums related to” benefits “existing by reason of [husband]’s employment during the marriage.” When the husband’s interest in the plan vested after divorce and a new benefit—here, a deferred retirement option program—was added to which the husband was entitled because of employment during the marriage, the wife was entitled to a portion of the new benefit.
Social Security benefits are not divisible on divorce, but rather are exempt from the just and right division of the community property, regardless of whether the benefits were received during the marriage. Federal law expressly preempts state law with respect to the treatment of Social Security benefits. Everse v. Everse, 440 S.W.3d 749, 752–55 (Tex. App.—Amarillo 2013, no pet.); see 42 U.S.C. § 407.
COMMENT: The attorney should ensure that the plan permits the proposed division of benefits.
COMMENT: The attorney should determine if a previous qualified domestic relations order (QDRO) has been entered dividing any portion of the retirement benefits currently being considered for division.
There are two types of plans. The first are private retirement plans, which are governed by the Employee Retirement Income Security Act of 1974 (ERISA), the federal pension law. The second are governmental plans and some church plans, which are not covered by ERISA. A private plan may be a defined contribution plan or a defined benefit plan (including a money purchase pension plan or a target benefits plan).
There are a number of ways to divide retirement benefits on divorce. The simpler private benefit plan to divide is a defined contribution plan, in which there is an account established for each participant—for example, a 401(k). The separate-property interest of a spouse in a defined contribution retirement plan may be traced using the tracing and characterization principles that apply to a nonretirement asset. Tex. Fam. Code § 3.007(c). Section 3.007(c) gives statutory authority to trace separate-property assets within a defined contribution plan. The attorney should address in the decree of divorce and the QDRO the date for the division of the benefit (sometimes called the “valuation date”), whether the alternate payee will receive gains and losses on the portion of any defined contribution benefit awarded to the alternate payee, and whether the value of any outstanding loans should be included or excluded when calculating the alternate payee’s award. The assets of many defined contribution plans are invested in mutual funds and stocks, making the value of the plan market driven and, thus, subject to gains of the particular stocks and mutual funds that compose the assets of the retirement plan. Also, there is usually an interval of time between the valuation date and the date that the plan is actually divided by the plan administrator (sometimes called the “segregation date”). Failure to specifically award gains and losses on the alternate payee’s portion to the alternate payee for the period between the valuation date and the segregation date could result in one party’s benefitting or being harmed by a change in the market.
The most difficult private plans to divide are defined benefit plans because these plans often include survivor annuities, cost-of-living adjustments, and early retirement subsidies. It is important to realize that there are plans that are a hybrid of defined contribution plans and defined benefit plans, such as money purchase pension plans and target benefit plans.
Within the context of awarding a portion of the participant’s retirement benefit in a defined benefit plan, the court is limited to an award that does not exceed the interest of the community estate in the retirement benefit. The “holy trinity” of cases pertaining to identification and division of the community estate’s interest in the employee spouse’s retirement benefits are Berry v. Berry, 647 S.W.2d 945 (Tex. 1983); Taggart v. Taggart, 552 S.W.2d 422 (Tex. 1977); and Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976). For a defined benefit plan or retirement annuity that has a guaranteed minimum benefit, any nonguaranteed portion of the benefit should also be divided by the court if there is sufficient evidence of the value of the nonguaranteed portion. In re Marriage of Hardin, 572 S.W.3d 310, 314–15 (Tex. App.—Amarillo 2019, no pet.).
Fundamental conclusions can be drawn from these cases:
1.A nonvested defined benefit that is not in pay status is an asset subject to division by the court.
2.The proper method of ascertaining the interest of the community estate in a benefit that was earned partially during marriage and partially outside marriage is on the basis of time spent by the employee earning the benefit.
3.The value of the benefit that is to be apportioned within the community estate is the value of the benefit as of the date of divorce.
4.The proper time apportionment fraction is that in which the numerator is the credited service earned by the employee during marriage and the denominator is the credited service earned by the employee through the date of divorce (or date of retirement if retirement occurs before divorce). These fractions have become commonly known as the “Berry” fraction if the party is not retired at the time of divorce and the “Taggart” fraction if the party has already retired at the time of divorce. These fractions yield the community estate’s share of the retirement benefit.
The Taggart formula has withstood the challenge of subsequent proposed apportionment methodologies. See Parliament v. Parliament, 860 S.W.2d 144 (Tex. App.—San Antonio 1993, writ denied).
It is important to note that, in most plans, orders to divide retirement benefits may also be used for payment of child support, spousal maintenance, and alimony. See parts X and XI of this chapter.
[Sections 25.13 through 25.20 are reserved for expansion.]
§ 25.21Qualified Domestic Relations Order (QDRO)
The term qualified domestic relations order (QDRO) is used to describe the order that divides all qualified retirement plans. See 26 U.S.C. § 414(p)(1)(A); 29 U.S.C. § 1056(d)(3)(B)(i); Tex. Gov’t Code § 804.001(4). This term is not used to describe all such orders. It is a term of art used in the Internal Revenue Code, the Employee Retirement Income Security Act (ERISA), and the Texas Government Code. It applies to private retirement plans and Texas government and some church plans, but it does not apply to military retirement plans, federal civil service plans, and benefits accrued under the Railroad Retirement Act. Using the term qualified domestic relations order where it does not belong may result in rejection of the order by the plan administrator.
§ 25.22Defined Benefit and Defined Contribution Plans
The practitioner must first determine whether the plan is a defined benefit plan or a defined contribution plan. Those terms are defined in the Internal Revenue Code and ERISA. See 26 U.S.C. § 414(i), (j); 29 U.S.C. § 1002(34), (35). The terms do not apply to all plans, but they describe the basic types of plans.
A defined contribution plan provides for an individual account for each participant and consists of employee and/or employer contributions. The account also includes any income, expenses, gains and losses, and any forfeitures of accounts of other participants that may be allocated to the participant’s account. 26 U.S.C. § 414(i); 29 U.S.C. § 1002(34). The apportionment formula in Berry, which divides defined benefit plans, is inappropriate for the division of a defined contribution plan. Iglinsky v. Iglinsky, 735 S.W.2d 536, 537–38 (Tex. App.—Tyler 1987, no writ) (citing Berry v. Berry, 647 S.W.2d 945 (Tex. 1983)).
A defined benefit plan is any qualified plan that is not a defined contribution plan. 26 U.S.C. § 414(j); 29 U.S.C. § 1002(35). A defined benefit plan usually involves the payment of benefits according to a formula. The formula takes into account the credited service earned under the plan during employment; the salary of the participant; and, in the case of a cash balance plan, the contributions made by the employer. If the participant accrued a benefit before marriage, a formula will typically be used to divide the benefit.
Valuation and Apportionment of Defined Benefit Plan If Employee Spouse Is Retired at Time of Divorce: The community-property interest in a defined benefit plan, if the employee spouse is already retired at the time of divorce, is calculated in accordance with the following formula: the number of months of credited service earned under the plan while married divided by the total number of months of credited service earned under the plan times the value of the retirement benefits (for example, the monthly annuity) as of the date of retirement equals the extent of the community-property interest. See Taggart v. Taggart, 552 S.W.2d 422, 424 (Tex. 1977).
Valuation and Apportionment of Defined Benefit Plan If Employee Spouse Is Not Retired at Time of Divorce: If a couple divorces before retirement, the value of the retirement benefits of a defined benefit plan is determined as of the date of divorce. May v. May, 716 S.W.2d 705, 710 (Tex. App.—Corpus Christi–Edinburg 1986, no writ). The nonemployee spouse (alternate payee) may not share in any of the employee spouse’s (participant’s) postdivorce earning and efforts. The community-property interest in the defined benefit plan if the benefits are contingent at the time of the divorce, because the employee spouse is still employed, is calculated in accordance with the following formula: the number of months of credited service earned under the plan while married divided by the total number of months of credited service earned under the plan as of the date of divorce times value of the retirement benefits (for example, the monthly annuity) as of the date of divorce equals the extent of the community-property interest. Berry, 647 S.W.2d at 946–47. Also, see Albrecht v. Albrecht, 974 S.W.2d 262 (Tex. App.—San Antonio 1998, no writ), holding that the Berry formula, not the Taggart formula, should be used when an employee has not retired as of the time of divorce. The Taggart formula is used when a party has already retired at the time of divorce.
Lump-Sum Amount or Percentage: Although some retirement plans may allow for the QDRO to state the amount to be awarded to the alternate payee in terms of a lump sum, other plans require the award to be stated in terms of a percentage of the value of the retirement account. If the plan requires the award to be stated in terms of a percentage, the trial court’s refusal to sign a QDRO stating the award in terms of a percentage constitutes error. Even where a mediated settlement agreement provides a lump-sum amount, the trial court would not be improperly modifying or altering the division of property contained in the agreement by expressing the lump-sum amount as the corresponding percentage of the account in the QDRO. In re Marriage of Dennings & Stokes, 651 S.W.3d. 60, 64–65 (Tex. App.—Houston [14th Dist.] 2021, no pet.).
[Sections 25.23 through 25.30 are reserved for expansion.]
IV. Continuing Jurisdiction for Order Dividing Plan
§ 25.31Continuing Jurisdiction for Order Dividing Retirement Plans
The court that rendered the final decree maintains continuing, exclusive jurisdiction to render and correct enforceable QDROs or similar orders permitting payment of pension, retirement plan, or other employee benefits to an alternate payee or other lawful payee. Unless prohibited by federal law, a suit seeking such an order applies to a previously divided pension, retirement plan, or other employee benefit divisible under Texas or federal law, whether the plan or benefit is private, state, or federal. Tex. Fam. Code § 9.101.
A party may petition a court to render a QDRO if the court that rendered a final decree of divorce dividing retirement benefits did not provide a QDRO permitting payment of benefits to an alternate payee. See Tex. Fam. Code § 9.103. If the order dividing a plan has been rejected by the plan or agency, the trial court retains continuing, exclusive jurisdiction to render a corrected QDRO that will qualify with the plan. Tex. Fam. Code § 9.104. Under Texas law, there is no statute of limitation on proceedings related to the rendition of QDROs. Shakouri v. Shakouri, No. 02-20-00297-CV, 2022 WL 189084, at *5 (Tex. App.—Fort Worth Jan. 20, 2022, pet. denied) (mem. op.). However, if the court has lost plenary power, any petition requesting an original or amended QDRO is governed by the Texas Rules of Civil Procedure that apply to the filing of an original lawsuit. See Tex. Fam. Code § 9.102. See also Araujo v. Araujo, 493 S.W.3d 232 (Tex. App.—San Antonio 2016, no pet.).
In rendering a QDRO based on a prior divorce decree, the court cannot change the substantive division of the retirement benefits made in the original decree. Shanks v. Treadway, 110 S.W.3d 444, 449 (Tex. 2003). However, a residuary clause in a divorce decree awarding a party 50 percent of the community property interest in any retirement benefits existing by reason of the other party’s past and present employment as of the date of divorce has been held sufficient to uphold the trial court’s subsequent rendering of a QDRO dividing the other party’s Federal Employees Retirement System benefits. Helm v. Hauser, No. 04-17-00232-CV, 2018 WL 2943823 (Tex. App.—San Antonio June 13, 2018, pet. denied), cert. denied, 140 S. Ct. 896 (2020). But see also Tatum v. Tatum, No. 14-19-00272-CV, 2020 WL 2832104 (Tex. App.—Houston [14th Dist.] May 28, 2020, pet. denied) (mem. op.) (for court to include postdivorce contributions and increases, such as cost-of-living adjustments, such benefits must be expressly awarded to alternate payee in final decree of divorce).
A court that renders a divorce but fails to divide retirement benefits can later divide the undivided property. Tex. Fam. Code §§ 9.201–.205. In In re Marriage of Malacara, the divorce decree did not specifically address retirement benefits but provided that “all community property not listed on any schedule . . . shall be owned by Husband and Wife as equal co-tenants.” After the husband retired and began receiving benefits, the wife sued for her share. The court of appeals held that the trial court could award a portion of the benefits already distributed as back payments pursuant to sections 9.009 and 9.010(b) of the Family Code. In re Marriage of Malacara, 223 S.W.3d 600 (Tex. App.—Amarillo 2007, no pet.) (per curiam); see also Pikulin v. Pikulin, No. 07-20-00150-CV, 2021 WL 4129839 (Tex. App.—Amarillo Sept. 10, 2021, no pet.) (mem. op.) (court awarded money judgment to ex-husband where ex-wife, as constructive trustee, breached her fiduciary duty to ex-husband by retaining husband’s portions of retirement benefits for six years).
Amendment of QDRO: A court that renders a QDRO retains continuing, exclusive jurisdiction to amend the order to correct it or clarify its terms to effectuate the division of property ordered by the court. Such an amended domestic relations order must be submitted to the plan administrator or equivalent to determine whether the amended order satisfies the requirements of a QDRO. If the order is rejected by the plan, the court retains continuing, exclusive jurisdiction to render a corrected QDRO that will qualify with the plan. Tex. Fam. Code § 9.1045; see Tex. Fam. Code § 9.104.
In amending a QDRO, however, the court may not amend, modify, alter, or change the division of property made or approved in the decree. See Tex. Fam. Code § 9.007. Where both the decree and the amended QDRO expressly stated that the amounts to be transferred were for child support, the amended QDRO did not change the substantive property division by naming the child, instead of the wife, as alternate payee; by specifying that the husband would be responsible for payment of taxes associated with the payment; or by including provision for payment of the remainder to the child’s beneficiary if the child died before receiving the full amount. Quijano v. Quijano, 347 S.W.3d 345 (Tex. App.—Houston [14th Dist.] 2011, no pet.); see also Green v. Green, No. 01-20-00663-CV, 2022 WL 3031346 (Tex. App.—Houston [1st Dist.] Aug. 2, 2022, no pet.) (mem. op.) (trial court’s clarification order that awarded wife portion of subsequent increases and cost-of-living adjustments to husband’s pension benefits impermissibly altered property division because decree did not award wife any portion of those increases and adjustments); Thomas v. Daniel, No. 02-21-00182-CV, 2022 WL 623474 (Tex. App.—Fort Worth Mar. 3, 2022, no pet.) (mem. op.) (trial court’s refusal to clarify final decree and amend retirement division order improperly divested husband of separate-property portion of his federal pension benefits); Windham v. Windham, No. 13-20-00118-CV, 2022 WL 242752 (Tex. App.—Corpus Christi–Edinburg Jan. 27, 2022, no pet.) (mem. op.) (after trial court vacated defective QDRO, court erred in denying wife's petition to enter amended QDRO, thereby improperly modifying divorce decree’s property division and divesting wife of her interest in husband’s retirement benefits); Gourley v. Gourley, No. 02-17-00228-CV, 2018 WL 2976431 (Tex. App.—Fort Worth June 14, 2018, no pet.) (mem. op.) (nunc pro tunc divorce decree that substantively changed division of husband’s retirement benefits void).
Attorney’s Fees: In a proceeding to obtain an enforceable order as provided by sections 9.101 through 9.105 of the Family Code, the court may award reasonable attorney’s fees incurred by a party to a divorce or annulment against the other party to the divorce or annulment and order that they be paid directly to the attorney. The attorney may enforce the order in the attorney’s own name by any means available for the enforcement of a judgment for debt. Tex. Fam. Code § 9.106.
[Sections 25.32 through 25.40 are reserved for expansion.]
No standard forms for QDROs exist, because each retirement plan is different. Even the plan’s model QDRO may not serve the needs of every client and should be closely scrutinized by the attorney. These are not fill-in-the-blank forms and can be rejected if the person using the form does not understand how the plans or model QDROs work. Worse still, a lack of understanding can cause the alternate payee to receive the incorrect benefit, as approval by the plan does not mean the QDRO complies with the decree and awarded benefit. It should not be assumed that the approval of the QDRO means that it has been drafted correctly.
The plan may not require the attorney to use its form. The plan’s model may secure the needs of the participant or employer. An order that might be approved by the administrator of one plan may be rejected by the administrator of another. Whenever possible, the proposed order should be submitted to the particular plan administrator for prequalification before the order is signed by the judge. If this is not possible, the QDRO can be corrected under Family Code section 9.104. See Tex. Fam. Code § 9.104.
COMMENT: In a defined benefit plan, the plan administrator may not assess a fee to administer or review the QDRO. However, defined contribution plan administrators may assess fees to administer or review a QDRO, and those fees are generally deducted from the parties’ plan account. Moreover, many plans assess higher fees for the review of QDROs that differ from the plans’ model QDROs. The attorney should determine and consider the amount of such fees that will be assessed in evaluating whether to use a particular plan’s model QDRO. However, the attorney should not use a model QDRO that does not protect the client or conform to the agreed-to division in order to save on review fees.
COMMENT: In drafting a settlement agreement or proposed order that will require a QDRO, the attorney should also consider whether the settlement agreement or proposed order should include specific terms regarding the allocation between the parties of fees assessed by the plan for review of the QDRO.
To be qualified under the Internal Revenue Code and ERISA, a plan must meet certain requirements. Beyond meeting those requirements, the rules and features of plans may differ from company to company.
In drafting a QDRO dividing the benefits of a qualified plan, it is best that the attorney have a copy of the summary plan description and QDRO procedures.
The numerous requirements of qualification will be discussed only insofar as they affect the division of benefits on divorce.
§ 25.43Definitions Applicable to Private Plans
Specific definitions set out in the Internal Revenue Code and ERISA apply to qualified private retirement plans.
Defined contribution plan: A defined contribution plan is one that provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant’s account and any income, expenses, gains and losses, and any forfeitures of accounts of other participants that may be allocated to the participant’s account. 26 U.S.C. § 414(i).
Defined benefit plan: A defined benefit plan is any plan that is not a defined contribution plan. 26 U.S.C. § 414(j).
Domestic relations order: A domestic relations order is any judgment, decree, or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant and is made in accordance with a state domestic relations law (including a community-property law). 26 U.S.C. § 414(p)(1)(B); 29 U.S.C. § 1056(d)(3)(B).
Qualified Domestic Relations Order (QDRO): A QDRO is a domestic relations order that creates or recognizes the existence of an alternate payee’s right to receive all or a portion of the benefits payable with respect to a participant under a plan and meets the requirements for a QDRO. 26 U.S.C. § 414(p)(1)(A); 29 U.S.C. § 1056(d)(3)(B)(i).
Participant: The participant is the employee who is or may become eligible to receive a benefit of any type from an employee benefit plan that is qualified under the federal statutes. 29 U.S.C. § 1002(7).
Alternate payee: An alternate payee is any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all or a portion of the benefits payable under a plan with respect to the participant. 26 U.S.C. § 414(p)(8); 29 U.S.C. § 1056(d)(3)(K).
Qualified joint and survivor annuity: A qualified joint and survivor annuity is an annuity for the life of the participant with a survivor annuity for the life of the spouse that is not less than 50 percent and not more than 100 percent of the amount of the annuity that is payable during the joint lives of the participant and spouse and that is the actuarial equivalent of a single annuity for the life of the participant. 26 U.S.C. § 417(b); 29 U.S.C. § 1055(d).
Qualified preretirement survivor annuity: A qualified preretirement annuity is an annuity for a spouse in a situation in which the participant had a vested benefit under the plan but had not retired before the participant’s death. The preretirement annuity must be for the life of the spouse and must be not less than 50 percent and not more than 100 percent of the amount of the annuity that would have been payable to the participant. 26 U.S.C. § 417(c); 29 U.S.C. § 1055(e).
§ 25.44Requirements of QDRO for Private Plans
To be a QDRO, the order must include the following information: (1) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order, (2) the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee or the manner in which the amount or percentage is to be determined, (3) the number of payments or period to which the order applies, and (4) each plan to which the order applies. 26 U.S.C. § 414(p)(2); 29 U.S.C. § 1056(d)(3)(C).
A domestic relations order meets the requirements of a QDRO only if the order (1) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan; (2) does not require the plan to provide increased benefits (determined on the basis of actuarial value); and (3) does not require the payment of benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO. 26 U.S.C. § 414(p)(3); 29 U.S.C. § 1056(d)(3)(D).
§ 25.45Survivor Benefits for Private Plans
In most cases a qualified defined benefit plan requires a joint and survivor annuity and a preretirement survivor annuity. 26 U.S.C. § 401(a)(11)(A); 29 U.S.C. § 1055(a). These survivor annuities are most common in defined benefit plans but may exist in a defined contribution plan that contains annuity provisions.
Unless the participant has elected the joint and survivor annuity option under the plan, the benefits payable to the alternate payee will cease on the participant’s death if the participant is retired at the time of divorce. If the participant is not retired at the time of divorce, without the joint and survivor annuity, the alternate payee’s benefit payments may cease at the participant’s death. The benefits would not cease if the QDRO is written so that the alternate payee’s life is the measuring life. This type of QDRO is called a separate-interest QDRO. If the participant’s life is the measuring life, this type of QDRO is called a shared-payment QDRO and would require the election of a joint and survivor annuity for the alternate payee’s benefits to continue after the participant’s death. The qualified joint and survivor annuity provides payments that are at least 50 percent and not more than 100 percent of the annuity that is received by the participant. 26 U.S.C. § 417(b); 29 U.S.C. § 1055(d).
If the participant dies after becoming eligible to retire but before retirement, the preretirement annuity provides payments to the beneficiary that are at least 50 percent and not more than 100 percent of the annuity that would have been received by the participant. 26 U.S.C. § 417(c); 29 U.S.C. § 1055(e). This annuity needs to be awarded if the QDRO is a shared-payment QDRO and the participant has not yet retired and sometimes if it is a separate-interest QDRO. The alternate payee’s benefits will be lost if no preretirement survivor annuity is awarded in the QDRO and the participant dies before reaching the earliest retirement age.
The QDRO must address these survivor benefits in dividing the plan benefits, or the survivor benefits may be lost forever. The attorney should realize that in most defined benefit plans, a QDRO can be drafted to provide an alternate payee with a benefit over his or her lifetime (with the alternate payee’s life as the measuring life), also called a separate-interest QDRO, or over the lifetime of the participant (with the participant’s life as the measuring life), also called a shared-payment QDRO. A separate-interest approach allows the alternate payee to begin to receive benefits when the participant reaches the earliest retirement age and will more than likely yield a different monthly benefit amount. The alternate payee’s benefits are actuarially adjusted over the life of the alternate payee. The shared-interest approach requires the alternate payee to wait to receive benefits until the participant begins to receive benefits, assuming the participant is not already in pay status. The alternate payee’s benefits would be paid over the life of the participant, and on the death of the participant, the alternate payee’s benefits would cease unless survivor benefits were awarded. The qualified joint and survivor annuity requires the participant’s benefits to be reduced at the time of retirement to pay for the annuity.
The qualified joint and survivor annuity and the qualified preretirement annuity may be waived during the marriage. During marriage a waiver can be accomplished only after a written explanation of the benefits is provided, and the spouse must join in the election to waive. The election must be in writing and signed by the participant and the spouse. 26 U.S.C. § 417(a); 29 U.S.C. § 1055(c). Once those benefits are waived and the participant is in pay status, they are waived forever. A divorce does not change that. If benefits have not been waived but are not agreed to and awarded in the QDRO, they are forfeited.
COMMENT: The attorney for the alternate payee should verify with the plan whether any waivers have occurred and whether they may be revoked.
COMMENT: If these survivor benefits are not covered in the QDRO, they can be lost forever. See 26 U.S.C. § 414(p)(5).
§ 25.46Shared-Payment (Shared-Interest) QDRO vs. Separate-Interest QDRO for Defined Benefit Plan QDROs
All plans allow the shared-payment approach, and it is unusual to find a private retirement plan that does not allow the separate-interest approach. The separate interest is the most widely used approach today but may not be best for one or both of the parties. It is wise to have the alternate payee select the form of payment in writing after the client has obtained advice from the appropriate professional.
The shared-payment QDRO generally operates as follows:
•The alternate payee cannot commence benefits early. The alternate payee must wait for the participant to retire.
•The alternate payee’s benefits are not actuarially adjusted to his lifetime. The alternate payee simply shares in each monthly pension payment payable to the participant. However, because the benefit is being paid over two lives, rather than one, and because of postretirement survivor protection, the entire initial monthly benefit will be reduced to pay for the postretirement survivor protection. Some plans have a subsidized joint and survivor annuity.
•Preretirement survivorship protection is also necessary to protect the alternate payee’s interest if the participant dies before commencing benefit payments. This annuity is known as the qualified preretirement survivor annuity (QPSA) and must be included in the QDRO to afford the alternate payee protection.
•Postretirement survivorship protection is also necessary to protect the alternate payee’s interest if the participant dies after commencing benefit payments. This annuity is known as the qualified joint and survivor annuity (QJSA) and must be included in the QDRO to afford the alternate payee protection.
•Any preretirement and postretirement survivor annuity benefits will be payable in lieu of, and not in addition to, any other benefit payments under the QDRO.
•The alternate payee’s benefits usually revert to the participant if the alternate payee dies first.
•If the participant is in pay status, the parties must use a shared-payment QDRO, and the form of benefit usually cannot be changed. Any survivor benefits waived at retirement are no longer available.
The separate-interest QDRO generally operates as follows:
•If the plan allows, the alternate payee can commence benefits early and before the participant actually retires but only on an unsubsidized basis—meaning that the alternate payee’s benefits will be reduced for early commencement.
•The alternate payee’s benefits are actuarially adjusted to his lifetime so the alternate payee is guaranteed to receive benefits for the alternate payee’s life. Accordingly, the alternate payee’s benefits may be reduced to a lower monthly number to pay for a longer lifespan of the alternate payee or to a higher monthly number to reflect the shorter lifespan of the alternate payee. This adjustment is in addition to the adjustment for early commencement.
•The participant and alternate payee’s benefits are completely severed, and each can take their benefits in whatever form they choose under most plans. In addition, if the participant remarries, he or she can elect a joint and survivor benefit for his or her new spouse.
•Preretirement survivorship protection may be, but is often not, necessary to protect the alternate payee’s interest if the participant dies before the alternate payee commences benefits. Verify if the plan requires that the QPSA must be included in the QDRO to afford the alternate payee protection.
•Any preretirement survivor annuity benefits will be payable in lieu of, and not in addition to, any other benefit payments under the QDRO.
•Postretirement survivorship protection is not necessary, because once the alternate payee commences his benefit, the alternate payee is receiving benefits based on the alternate payee’s lifetime, and the participant’s death does not affect the alternate payee’s benefit.
•Benefits may revert to the participant if the alternate payee dies before the alternate payee’s commencement of benefits.
•Benefits do not revert to the participant if the alternate payee dies after the alternate payee’s commencement of benefits. As most plans will not allow the alternate payee to elect a beneficiary, the alternate payee’s benefits inure to the plan; however, the alternate payee’s ability to elect a beneficiary usually depends on the form of benefit elected by the alternate payee. An alternate payee may not elect a joint and survivor benefit with a new spouse as the joint annuitant.
•Separate-interest QDROs cannot be used if the participant is in pay status.
The primary difference in the two approaches is that the alternate payee’s benefits are either actuarially adjusted for the alternate payee’s lifetime (the separate-interest QDRO) or not (the shared-payment QDRO).
§ 25.47Early Retirement Subsidy
The vast majority of defined benefit plans include early retirement provisions that afford participants the opportunity to retire before their normal retirement age. The early retirement subsidy is a benefit that a defined benefit plan may offer and is a marital asset subject to division on divorce. The alternate payee should be entitled to receive a pro rata share of any early retirement subsidy payable to the participant under the plan. If agreed to by the parties, the QDRO should contain language regarding a recalculation of the benefits should the participant subsequently elect to retire early under the plan after the alternate payee has already commenced benefits. The QDRO should instruct the plan administrator to recalculate the alternate payee’s benefits to provide a pro rata share of any early retirement subsidy received by the participant on the date of retirement, if allowed by the plan.
§ 25.48Cost-of-Living Adjustment
If the participant is in pay status at the time of divorce, both the final decree of divorce and the QDRO should include language that provides the alternate payee with a pro rata share of cost-of-living adjustments (COLAs). Harrell v. Harrell, 700 S.W.2d 645, 647–48 (Tex. App.—Corpus Christi–Edinburg 1986, no writ); Neese v. Neese, 669 S.W.2d 388, 390 (Tex. App.—Eastland 1984, writ ref’d n.r.e.). If the participant is not in pay status, some COLAs may not be divisible if, for example, they are based on the participant’s services or continued employment. See May v. May, 716 S.W.2d 705, 711 (Tex. App.—Corpus Christi–Edinburg 1986, no writ); Dunn v. Dunn, 703 S.W.2d 317, 320–21 (Tex. App.—San Antonio 1986, writ ref’d n.r.e.). However, COLAs that are subject to community-property division are those that are not attributable to postdivorce raises, promotions, services rendered, or contributions but instead are based on inflation or investment increases. See Grier v. Grier, 731 S.W.2d 931 (Tex. 1987). Such benefits must be expressly awarded to the alternate payee spouse in the final decree of divorce in order to be included in a QDRO. See Tatum v. Tatum, No. 14-19-00272-CV, 2020 WL 2832104 (Tex. App.—Houston [14th Dist.] May 28, 2020, pet. denied) (mem. op.).
[Sections 25.49 and 25.50 are reserved for expansion.]
VI. Texas Public Retirement System
§ 25.51Texas Public Retirement System Generally
The retirement programs for officers or employees of the state, political subdivisions, and agencies and instrumentalities of the state and political subdivisions, including those participating in the optional retirement program governed by chapter 830 of the Texas Government Code, are governed by title 8 of the Texas Government Code. See Tex. Gov’t Code §§ 801.001(2), 830.001.
The public retirement system includes the Employees Retirement System of Texas, the Judicial Retirement System of Texas Plan One, the Judicial Retirement System of Texas Plan Two, the Teacher Retirement System of Texas, the Texas County and District Retirement System, the Texas Municipal Retirement System, and any other continuing, organized program of service retirement, disability retirement, or death benefits for officers or employees of the state, a political subdivision, and an agency or instrumentality of the state or a political subdivision and includes the optional retirement program governed by chapter 830 of the Government Code. Tex. Gov’t Code § 804.001(3).
Benefits provided by a statewide retirement system, the optional retirement program, and those public retirement systems that have elected to adopt the provisions of subchapter A and subchapter C of chapter 804 of the Government Code may be divided only by a QDRO. See Tex. Gov’t Code §§ 804.002, 804.003.
§ 25.52Definitions for State Retirement Systems
The following definitions apply to the division of Texas public retirement system plans covered by chapter 804 of the Texas Government Code.
Domestic relations order: A domestic relations order means any judgment, decree, or order, including approval of a property settlement agreement, that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a member or retiree and is made pursuant to a domestic relations law, including a community-property law of Texas or of another state. Tex. Gov’t Code § 804.001(2).
Qualified domestic relations order (QDRO): A QDRO is a domestic relations order that creates, recognizes, or assigns to an alternate payee the right to receive benefits, that directs the public retirement system to disburse the benefits to the alternate payee, and that meets the requirements of section 804.003 of the Government Code. Tex. Gov’t Code § 804.001(4).
Alternate payee: In a divorce case the alternate payee is the former spouse of a member or retiree who is recognized by a QDRO as having a right to receive all or a portion of the benefits payable by a public retirement system with respect to the member or retiree. Tex. Gov’t Code § 804.001(1).
Statewide retirement system: The term statewide retirement system means the following retirement systems: Employees Retirement System of Texas, Judicial Retirement System of Texas Plan One, Judicial Retirement System of Texas Plan Two, Teacher Retirement System of Texas, Texas County and District Retirement System, and Texas Municipal Retirement System. Tex. Gov’t Code § 804.001(5).
Public retirement system: The term public retirement system includes the same entities as the statewide retirement system plus any other continuing, organized program of service retirement, disability retirement, or death benefits for officers or employees of the state or a political subdivision or of any agency or instrumentality of the state or a political subdivision; it includes the optional retirement program under Government Code chapter 830. Tex. Gov’t Code § 804.001(3).
To be “qualified,” a domestic relations order must satisfy the following requirements:
Identifying information: The order must clearly specify the name and last known mailing address of the member or retiree and each alternate payee covered by the order. It must also specify the Social Security number, or an express authorization for the parties to use an alternate method acceptable to the retirement system to verify the Social Security number, of the member or retiree and each alternate payee covered by the order. Tex. Gov’t Code § 804.003(f)(1).
Division of benefits: The order must clearly specify the amount or percentage of the member’s or retiree’s benefits to be paid by a public retirement system to each alternate payee or the manner in which the amount or percentage is to be determined. Tex. Gov’t Code § 804.003(f)(2).
Payment specifics: The order must clearly specify the number of payments or the period to which the order applies. Tex. Gov’t Code § 804.003(f)(3).
Identity of retirement system: The order must clearly specify that the order applies to a designated public retirement system. Tex. Gov’t Code § 804.003(f)(4).
No benefits or options not in plan: The order may not require the public retirement system to provide any type or form of benefit or any option not otherwise provided for under the plan. Tex. Gov’t Code § 804.003(f)(5).
No increase based on actuarial value: The order may not require the public retirement system to provide increased benefits determined on the basis of actuarial value. Tex. Gov’t Code § 804.003(f)(6).
No double payment to alternate payees: The order may not require the payment of benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO. Tex. Gov’t Code § 804.003(f)(7).
No payments before certain events: The order may not require the payment of benefits to an alternate payee before the retirement of a member, the distribution of a withdrawal of contributions by a member, or other distribution to a member required by law. Tex. Gov’t Code § 804.003(f)(8).
§ 25.54Statutory Reasons for Rejection by Retirement System
A state public retirement system may reject a domestic relations order as a QDRO if the order does not meet the following criteria:
Reduction before normal retirement age: The order may be rejected by the system unless the order provides for a proportional reduction of the amount awarded to the alternate payee in the event of the retirement of the member before normal retirement age. Tex. Gov’t Code § 804.003(g)(1).
Beneficiary on death of member: The order may be rejected by the system if the order purports to require the designation of a particular person as the recipient of benefits in the event of a member’s or annuitant’s death. Tex. Gov’t Code § 804.003(g)(2).
Selection of payment plan or option: The order may be rejected by the system if the order purports to require the selection of a particular benefit payment plan or option. Tex. Gov’t Code § 804.003(g)(3).
Clear provisions for benefit distribution: The order may be rejected by the system unless it provides clearly for each possible benefit distribution under the plan provisions. Tex. Gov’t Code § 804.003(g)(4).
Actions contrary to law or plan: The order may be rejected by the system if the order requires any action on the part of the retirement system contrary to its governing statutes or plan provision other than the direct payment of the benefit awarded to an alternate payee. Tex. Gov’t Code § 804.003(g)(5).
Award contingent on condition other than provided in plan: The order may be rejected by the system if the award is contingent on any condition other than those conditions resulting in the liability of a retirement system for payments under its plan provisions. Tex. Gov’t Code § 804.003(g)(6).
Future benefit increases: The order may be rejected by the system if the order purports to award any future benefit increases that are provided or required by the legislature. Tex. Gov’t Code § 804.003(g)(7).
Reduction of benefits: The order may be rejected by the system if the order does not provide for a proportional reduction of the amount awarded to an alternate payee if benefits available to the retiree or member are reduced by law. Tex. Gov’t Code § 804.003(g)(8).
Model order: The order may be rejected by the system if the order does not conform to a model order adopted by the retirement system, if the system so requires. Tex. Gov’t Code § 804.003(g)(9).
§ 25.55Payments to Alternate Payee
Payments to an alternate payee pursuant to a QDRO are generally if, as, and when received by the retiree member. They are governed by the form of benefit elected by the member. See Tex. Gov’t Code § 804.003.
The public retirement system may, by rule, direct that the actuarial equivalent of the share of the benefit awarded to the alternate payee shall be paid in the form of either an annuity payable in equal monthly installments for the life of the alternate payee or a single lump sum. Except with respect to the Employees Retirement System of Texas and the Teacher Retirement System of Texas, the decision to pay by one of these alternative means is within the sole discretion of the public retirement system. See Tex. Gov’t Code § 804.004(a), (b).
Alternate payees of members of the Employees Retirement System of Texas or the Teacher Retirement System of Texas may elect to receive the actuarial equivalent of the share of benefits awarded to them by a QDRO paid in the form of a straight life annuity for the life of the alternate payee, provided the member has not retired but is eligible to retire. See Tex. Gov’t Code § 804.005(b).
§ 25.56Death Terminates Interest of Alternate Payee
The alternate payee’s death terminates the alternate payee’s interest in the public retirement system. Tex. Gov’t Code § 804.101. The constitutionality of this statute has been upheld. See Kunin v. Feofanov, 69 F.3d 59, 159–60 (5th Cir. 1995).
§ 25.57Optional Retirement Program
The optional retirement program applies to faculty members employed in state-supported institutions of higher education. Tex. Gov’t Code § 830.001. Investments in this program may be in any type of investment authorized under sections 401(g) and 403(b) of the Internal Revenue Code. Tex. Gov’t Code § 830.002(a). These plans are usually defined contribution plans but may include some part as a defined benefit plan.
A certified copy of the domestic relations order must be sent to the public retirement system. On receipt of the domestic relations order, the administrative head of the public retirement system or his designee (or applicable carrier, if under the optional retirement program) shall determine whether the order is a QDRO. The member, retiree, or any alternate payee shall be notified of the determination. Tex. Gov’t Code § 804.003(h). With respect to the Texas County and District Retirement System and the Texas Municipal Retirement System, the designated “domestic relations liaison” is required to give prompt written confirmation of receipt of the domestic relations order to all parties. 34 Tex. Admin. Code §§ 109.3, 129.3. If the domestic relations liaison determines, on receipt of the order, that the order may not be a “qualified” order, the liaison shall so state in the confirmation letter. Within ninety days of the date of the confirmation letter, the parties must commence action to bring the order into compliance. If that action is not commenced within the ninety-day period, a nonqualification determination will be made. 34 Tex. Admin. Code §§ 109.9(a), 129.9(a).
If an order or decree is found to be a QDRO, the public retirement system (or applicable carrier, if under the optional retirement program) shall pay the segregated amounts without interest to the person or persons entitled to them and shall thereafter pay benefits under the order. Tex. Gov’t Code § 804.003(j).
A “nonqualification” determination may be appealed. Alternatively, the dissatisfied party may seek amendment of the domestic relations order by the court that issued the domestic relations order or by a court that would otherwise have jurisdiction over the matter. Tex. Gov’t Code § 804.003(h); Conti v. Conti, 866 S.W.2d 671, 672–73 (Tex. App.—Houston [14th Dist.] 1993, writ denied). If the court renders an amended order that addresses the objections to qualification stated by the plan, a certified copy of the amended order must be sent to the public retirement system. The qualification process then begins again. With respect to the Texas County and District Retirement System and the Texas Municipal Retirement System, the risk of a “nonqualification” determination can be avoided by use of a “pre-approved” QDRO. These forms are authorized by 34 Tex. Admin. Code § 109.13(a) for the Texas County and District Retirement System and by 34 Tex. Admin. Code § 129.13(a) for the Texas Municipal Retirement System.
The public retirement system may assess administrative fees on a party who is subject to a domestic relations order for the review of the order and, as applicable, for the administration of payments under an order that is determined to be qualified. In addition to other methods of collecting fees, the system may deduct the fees from payments made under the order. Tex. Gov’t. Code § 804.003(p).
COMMENT: In drafting a settlement agreement or proposed order that will require a QDRO, the attorney should also consider whether the settlement agreement or proposed order should include specific terms regarding the allocation between the parties of fees assessed by the plan for review of the QDRO.
§ 25.59Appeal of Nonqualification Determination
If an order is determined not to be a QDRO, the member or retiree or any alternate payee named in the order may appeal the determination. Tex. Gov’t Code § 804.003(h). Appeal is to the board of trustees of the public retirement system. By rule, the board of trustees of a statewide retirement system may waive appeal to the board and may provide that appeal shall be to the administrative head of the system. A nonqualification determination by the Teacher Retirement System of Texas is deemed a final decision by the system and cannot be appealed to the board of trustees. However, a party adversely affected by a nonqualification determination made by the system may, within twenty days of the date of the nonqualification determination, file a motion for reconsideration. 34 Tex. Admin. Code § 47.6. Procedures for review of a nonqualification determination made by the Texas County and District Retirement System or the Texas Municipal Retirement System are set forth at 34 Tex. Admin. Code §§ 109.9–.11 for the Texas County and District Retirement System and 34 Tex. Admin. Code §§ 129.9–.11 for the Texas Municipal Retirement System.
An appeal is a contested case under Government Code chapter 2001, and the standard of review is by substantial evidence. Tex. Gov’t Code § 804.003(b). A court does not have jurisdiction to require a public retirement system to recognize an order as a QDRO. Tex. Gov’t Code § 804.003(c).
§ 25.60Special Decree Language to Change TRS Beneficiary Designation
The Teacher Retirement System (TRS) allows a retiree to elect, instead of a standard service retirement annuity, an optional annuity that provides reduced payments to the retiree during his life and, at death, continued payments to and throughout the life of a designated beneficiary. Only one beneficiary can be designated, and changing the designation is restricted, since the value of the optional annuity, and hence the cost to TRS, depend on the beneficiary’s longevity. To revoke the beneficiary designation, the retiree must strictly follow the TRS requirements: prescribed forms must be used, and either (1) a divorce court must approve or order the revocation or (2) the beneficiary spouse must sign a notarized consent to the revocation. See Tex. Gov’t Code §§ 824.101(c), 824.1012, 824.1013. Provisions in a divorce decree that awarded the retiree all retirement benefits and divested the beneficiary spouse of all right to the benefits did not constitute an order for a change of beneficiary and was not accepted by TRS. Holmes v. Kent, 221 S.W.3d 622 (Tex. 2007) (per curiam). The decree must clearly order a change of beneficiary or a revocation of the spouse as beneficiary and a substitution of a new beneficiary.
Note: The foregoing paragraph applies only to TRS participants who are in pay status and have elected a joint survivor annuity.
A reimbursement lien imposed on the interest awarded to the nonmember spouse in a retirement account in the Teacher Retirement System (TRS) is not prohibited by the nonassignability statute applicable to TRS benefits or the Employee Retirement Income Security Act (ERISA). The purpose of section 821.005 of the Texas Government Code is to protect the interests in the teacher retirement fund from a member’s creditors, not from the community property division in favor of another spouse. The lien did not violate the antialienation provisions of ERISA, because ERISA specifically excludes “government plans” from its coverage (29 U.S.C. § 1003(b)(1)). TRS falls neatly into the definition of a governmental plan and is not, therefore, subject to title 1 of ERISA. Chacon v. Chacon, 222 S.W.3d 909 (Tex. App.—El Paso 2007, no pet.).
[Sections 25.62 through 25.70 are reserved for expansion.]
VII. Uniformed Services Former Spouses’ Protection Act
Texas courts have long held that military retirement benefits are community property and that the trial court must consider those benefits in a division of the estate of the parties. Cearley v. Cearley, 544 S.W.2d 661, 662 (Tex. 1976); Mora v. Mora, 429 S.W.2d 660, 662 (Tex. App.—San Antonio 1968, writ dism’d); Kirkham v. Kirkham, 335 S.W.2d 393, 394 (Tex. App.—San Antonio 1960, no writ). In 1981, however, the United States Supreme Court held that federal law preempted state law regarding the division or apportionment of military retirement and that military-related benefits (that is, retired pay and survivorship benefits) were not divisible on divorce and could not be considered in dividing the property of the parties. McCarty v. McCarty, 453 U.S. 210 (1981).
In 1982, in direct response to McCarty, Congress enacted the Uniformed Services Former Spouses’ Protection Act (USFSPA), which reversed the effect of McCarty such that military retired pay, at least, became divisible as a divorce asset. Survivorship benefits, however, continued to be subject to federal preemption until November 14, 1986, when Congress amended the USFSPA to allow trial courts to order the service member to designate his then spouse as a “former spouse beneficiary” of his Survivor Benefit Plan (SBP) to afford the surviving “former spouse” some measure of security if the service member predeceased the former spouse.
The issue of whether the USFSPA authorized trial courts to divide “gross retired pay” (GRP) or “disposable retired pay” (DRP) was decided by the United States Supreme Court in 1989 in Mansell v. Mansell, 490 U.S. 581 (1989). It held that trial courts are authorized to divide only DRP. As a result, the government finance office administering the implementation of the USFSPA, the Defense Finance and Accounting Service (DFAS), will pay the former spouse only the court-ordered percentage of the service member’s DRP, regardless of whether the parties were to agree that the former spouse should receive a percentage of the service member’s GRP. Thus, as far as the DFAS is concerned, the USFSPA, as amended and interpreted by Mansell, now governs the division of military retired pay on divorce.
Congress has enacted major changes to the military retirement system in recent years. In 2016, Congress amended the USFSPA to include the “Frozen Benefit Rule,” which requires courts to freeze a servicemember’s retired pay base and years of service on the date of divorce. See 10 U.S.C. § 1408(a)(4)(B). This method of retirement calculation has been the law in Texas since 1983, and as a result of the amendment, the division of DRP in a divorce using a time rule formula is no longer permitted in any state.
In 2015, Congress established the Blended Retirement System, which took effect on January 1, 2018, for any person who entered military service on or after that date. Some other active duty service members and reservists were allowed to opt in to the Blended Retirement System or remain in the previous system, now known as the “legacy retirement system.” See the discussion at section 25.73 below.
The relevant and controlling provisions of the USFSPA are found in 10 U.S.C. § 1408. The following sections in this chapter of the manual are concerned with the division of the military retirement benefits in a current divorce and do not treat retroactivity issues, which may be particularly troublesome if arising from divorce decrees that predate the enactment of the USFSPA.
The terms qualified domestic relations order, alternate payee, and other such terms are not applicable to military retirement, whether enforceable under the USFSPA or not, and should not be used in an order dividing military retirement. Because military retirement does not come within the purview of ERISA, a division order can never be a “qualified” order; instead, “Military Retirement Pension Division Order” (MRPDO) should be used. Additionally, the following terms, as defined in the USFSPA, should be used in the MRPDO.
Court order: As applicable in Texas, the term court order means a final decree of divorce, dissolution, or annulment issued by a Texas court under Texas law that divides the military retirement benefit, including a property settlement incident to the decree and approved by the court. The division of the retirement benefit may be expressed in dollars or as a percentage of the disposable retired pay of a member to be paid to the spouse or former spouse of the member. See 10 U.S.C. § 1408(a)(2).
Final decree: The term final decree means a decree from which no appeal may be taken or from which no appeal has been taken within the time allowed for taking appeal or a decree from which an appeal has been taken and finally decided. 10 U.S.C. § 1408(a)(3).
Disposable retired pay: The term disposable retired pay means the total monthly retired pay to which a member is entitled (called “gross retired pay” on the member’s retiree account statement) less several items involving money owed or forfeited to the government. In determining the disposable retired pay, the “total monthly retired pay to which the member is entitled” is the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the divorce, as increased by each cost-of-living adjustment that occurs between the time of the divorce and the time of the member’s retirement. 10 U.S.C. § 1408(a)(4)(A), (a)(4)(B); see 10 U.S.C. § 1401a(b). Under the USFSPA, military retirement benefits are generally divisible at divorce if they are community property. 10 U.S.C. § 1408(c)(1); Mansell v. Mansell, 490 U.S. 581, 584 (1989). However, divisible benefits are limited to “disposable retired pay,” which is defined to exclude, among other things, disability pay, including retired pay that may be waived in order to receive VA disability compensation and those computed using the percentage of disability on the date a person in the military is placed on the Temporary Disability Retirement List or on permanent disability. 10 U.S.C. § 1408(a)(4)(C); Mansell, 490 U.S. at 589; Thomas v. Piorkowski, 286 S.W.3d 662, 666 (Tex. App.—Corpus Christi–Edinburg 2009, no pet.); Limbaugh v. Limbaugh, 71 S.W.3d 1, 16–17 (Tex. App.—Waco 2002, no pet.). Combat-related special compensation (CRSC) is a form of disability pay that an eligible member can elect to receive in lieu of full retirement pay and concurrent retirement disability pay. CRSC, like VA disability benefits, is not disposable retired pay and, under federal preemption, cannot be divided by a state court. Jackson v. Jackson, 319 S.W.3d 76 (Tex. App.—San Antonio 2010, no pet.); Sharp v. Sharp, 314 S.W.3d 22 (Tex. App.—San Antonio 2009, no pet.).
Member: The term member includes a former member entitled to retired pay. 10 U.S.C. § 1408(a)(5).
Spouse or former spouse: The term spouse or former spouse means the husband or wife or former husband or wife of a member who, on or before the date of a court order, was married to that member. 10 U.S.C. § 1408(a)(6).
A court may treat (that is, may consider and divide or apportion) disposable retired pay payable to a member as property of the member and spouse in accordance with Texas law. 10 U.S.C. § 1408(c)(1). The court may not so treat (that is, may not divide or apportion) the retired pay if the divorce was granted before June 25, 1981, and the retired pay was not divided or otherwise reserved for future treatment or division. Havlen v. McDougall, 22 S.W.3d 343, 346–48 (Tex. 2000).
Disposable retired pay does not include retired pay waived to receive veterans disability compensation; the USFSPA does not grant state courts the power to treat as property divisible on divorce military retired pay that has been waived to receive veterans disability benefits. Mansell v. Mansell, 490 U.S. 581, 589 (1989). Veterans disability benefits have not been divisible in Texas (that is, they have been the member’s separate property) since at least 1979. Hagen v. Hagen, 282 S.W.3d 899, 903 (Tex. 2009); Ex parte Burson, 615 S.W.2d 192, 194–95 (Tex. 1981) (orig. proceeding); Ex parte Johnson, 591 S.W.2d 453, 454 (Tex. 1979) (orig. proceeding). As such, a state court is without the power or authority to enter an order that prohibits a service member from waiving retired pay to receive veterans disability compensation, such as prohibiting the service member, postdivorce, from making any election of benefits that may reduce the amount of the benefit the court has awarded the spouse. See 10 U.S.C. § 1408(c)(1); Mansell, 490 U.S. at 589; Ex parte Burson, 615 S.W.2d at 196; Gillin v. Gillin, 307 S.W.3d 395 (Tex. App.—San Antonio 2009, no pet.); Loria v. Loria, 189 S.W.3d 797 (Tex. App.—Houston [1st Dist.] 2006, no pet.); Freeman v. Freeman, 133 S.W.3d 277 (Tex. App.—San Antonio 2003, no pet.); Limbaugh v. Limbaugh, 71 S.W.3d 1, 16–17 (Tex. App.—Waco 2002, no pet.); Press v. Press, No. 03-97-00432-CV, 1998 WL 271054 (Tex. App.—Austin May 29, 1998, no pet.) (mem. op., not designated for publication); Wallace v. Fuller, 832 S.W.2d 714, 719 (Tex. App.—Austin 1992, no writ); Gallegos v. Gallegos, 788 S.W.2d 158, 160 (Tex. App.—San Antonio 1990, no writ).
In Hagen, the Texas Supreme Court, while reaffirming that veterans disability benefits are not divisible, went even further, holding that the term military retired pay, even when used in an agreed divorce decree, does not include retired pay that a service member may, long after the parties’ divorce decree is signed, waive to elect veterans disability compensation. Hagen, 282 S.W.3d at 905–06. Furthermore, the United States Supreme Court has held that state courts “may not order a veteran to indemnify a divorced spouse for the loss in the divorced spouse’s portion of the veteran’s retirement pay caused by the veteran’s waiver of retirement pay to receive service-related disability benefits.” Howell v. Howell, 137 S. Ct. 1400 (2017).
However, in Rudolph v. Jamieson, No. 03-17-00693-CV, 2018 WL 2648514 (Tex. App.—Austin June 5, 2018, pet. denied) (mem. op.), the parties’ agreed divorce decree awarded the wife a portion of the husband’s disposable retired pay. The decree specified that this award included “all amounts of retired pay [husband] actually or constructively waives or forfeits in any manner and for any reason or purpose” and “any sum taken by [husband] in addition to or in lieu of retirement benefits, including . . . any other form of compensation attributable to separation from military service instead of or in addition to payment of the military benefits normally payable to a retired member.” Due to injuries sustained in combat, the husband was later determined to be disabled and placed on the Army’s Permanent Disability Retired List, and he retired. As a result of the veterans disability benefits paid to the husband, he did not receive any of the disposable retired pay that he ordinarily would have received based on his years of service. The wife later filed suit for enforcement, alleging that the husband had not paid her any portion of his retirement benefits. The trial court rendered an order clarifying and enforcing the divorce decree, and the husband appealed. Although the husband cited federal case law supporting his argument that state courts are prohibited from dividing a military retiree’s retirement pay waived in order to receive veterans disability benefits, the court of appeals affirmed the trial court’s ruling because the husband agreed to the provisions of the divorce decree and did not appeal the divorce decree. Therefore, the husband could not collaterally attack the division of his retirement pay after the appellate deadlines passed, even if the division provided by the decree was allegedly unlawful.
Similarly, combat-related special compensation (CRSC) elected under 10 U.S.C. 1413a is not retirement pay and is not divisible. Sharp v. Sharp, 314 S.W.3d 22 (Tex. App.—San Antonio 2009, no pet.). A servicemember’s election to receive CRSC does not constitute a breach of fiduciary duty or other obligation created by a divorce decree awarding the former spouse an interest in the servicemember’s disposable retired or retainer pay if, as, and when received and appointing the servicemember a trustee of that entitlement to the extent it was not paid to the former spouse by DFAS. Jackson v. Jackson, 319 S.W.3d 76 (Tex. App.—San Antonio 2010, no pet.).
The National Defense Authorization Act (NDAA) for Fiscal Year 2017 required that court orders for the division of military retirement (for active duty or reserve members entering after September 8, 1980) contain the High-36 calculation of the hypothetical retired pay at the time of divorce for valuation purposes. See Pub. L. No. 114-328, § 641, 130 Stat. 2164 (2016); 10 U.S.C. § 1408(a)(4)(B).
The NDAA for Fiscal Year 2016 created the new Blended Retirement System for servicemembers entering service on or after January 1, 2018; for active duty servicemembers with twelve years or less of creditable service as of December 31, 2017, who opted in to the new retirement system by December 31, 2018; and for reservists who had earned fewer than 4,320 points as of December 31, 2017, who opted in by December 31, 2018. The Blended Retirement System makes significant changes to the former legacy retirement system by lowering the longevity percentage from 0.025 to 0.020 and providing for enhanced participation in the Thrift Savings Plan, the potential for a mid-career “continuation” bonus, and an option to receive a lump-sum amount of retired pay (subject to conditions) at retirement. See Pub. L. No. 114-92, §§ 631–35, 129 Stat. 842 (2015).
A court may not divide the disposable retired pay of a member unless the court has jurisdiction over the member by reason of residence, domicile, or his consent to the jurisdiction of the court. The residence is not sufficient for jurisdiction if it is because of military assignment in the territorial jurisdiction of the court. 10 U.S.C. § 1408(c)(4). However, if the member is the petitioner or appears but does not “specially appear” as to the military retirement, he has consented to the court’s jurisdiction.
Special care should be taken to ensure that the trial court has “USFSPA jurisdiction” over the service member if a default divorce is being taken. If the record and findings do not reflect that the trial court had USFSPA jurisdiction over the service member, the DFAS will not honor the order if the former spouse is otherwise entitled to receive that former spouse’s share of the retired pay directly from the DFAS. See section 25.75 below.
§ 25.75Payment to Former Spouse
Payments by DFAS: When the court order has been properly served on the DFAS, the DFAS will make payments from the member’s disposable retired pay to the former spouse in accordance with the court order. In the case of a member not entitled to receive retired pay on the date of the effective service of the court order, the payments shall begin no later than ninety days after the date on which the member first becomes entitled to receive retired pay. 10 U.S.C. § 1408(d)(1).
Ten-Year Rule: If the former spouse to whom the payments are to be made was not married to the member for a period of ten years or more during which the member performed at least ten years of service creditable in determining the member’s eligibility for retired pay, payments may not and will not be made to the former spouse by the DFAS. 10 U.S.C. § 1408(d)(2). This limitation does not mean that the retired pay is not divisible or is not payable as divided; it means only that the DFAS will not make the payments to the former spouse. The former spouse must obtain the awarded share of the retired pay directly from the member.
Monthly Payments: Payments by the DFAS shall not be made more frequently than once each month. The DFAS may not be required to vary normal pay and disbursement cycles for retired pay to comply with a court order. 10 U.S.C. § 1408(d)(3).
Termination of Payments: Payments shall terminate in accordance with the terms of the court order but not later than the date of death of the member or the date of death of the former spouse to whom the payments are being made, whichever occurs first. 10 U.S.C. § 1408(d)(4).
More Than One Order: The total amount of the disposable retired pay of a member payable under all court orders may not exceed 50 percent of the member’s disposable retired pay. In the event of effective service of more than one court order providing for payment to a spouse and one or more former spouses or to more than one former spouse, the eligible disposable retired pay of the member shall be used to satisfy the court orders on a first-come, first-served basis. 10 U.S.C. § 1408(e)(1), (e)(2).
A person (DFAS employee) receiving effective service of a court order must, as soon as possible but not later than thirty days after the date on which effective service is made, send a written notice of the order (together with a copy of the order) to the member affected by the court order at the last known address of the member. 10 U.S.C. § 1408(g).
Payments to the former spouse are made by the DFAS. For additional information, see www.dfas.mil/garnishment/usfspa/apply.
To register an order that divides or partitions a portion of the member’s military retirement to the former spouse for an active or reserve member, whether the member is presently retired and receiving retired pay or is still on active duty or is an active reservist but expected to receive retired pay in the future, the former spouse should submit a “registration package” that includes (1) a completed Application for Former Spouse Payments from Retired Pay (DD Form 2293); (2) a copy of the operative order that has been certified within ninety days preceding its receipt by the DFAS; (3) a Certificate of Finality, which is a certification by the former spouse or the former spouse’s attorney that the operative order is a “final judgment”; (4) a W-4 Employee’s Withholding Allowance Certificate or a W-4P Withholding Certificate for Pension or Annuity Payments; and (5) a Former Spouse Direct Deposit form. These forms, in a fillable PDF format, are available and can be downloaded from the DFAS website.
The application package, when assembled, should be sent to the following offices, as applicable:
Army, Navy, Air Force, Marine Corps: Attn: DFAS-HGA-CL, Assistant General Counsel for Garnishment Operations, P.O. Box 998002, Cleveland, OH 44199-8002. The application package can be served by fax to 877-622-5930 (toll free). The DFAS may be contacted by telephone at 877-332-7411.
U.S. Coast Guard: Commanding Officer (1GL), United States Coast Guard Personnel Service Center, 444 SE Quincy Street, Topeka, KS 66683-3591. The application package can also be served by fax to 785-339-3788. This office may be contacted by telephone at 800-772-8724.
U.S. Public Health Service: Attn: Retired Pay Section, CB, Division of Commissioned Personnel, PUBLIC HEALTH SERVICE, Room 4-50, 5600 Fishers Lane, Rockville, MD 20857-0001.
National Oceanic and Atmospheric Administration: The same address as for the U.S. Coast Guard should be used.
Survivor Benefit Plan: To register an order for SBP coverage for the former spouse of an Army, Navy, Air Force, or Marine Corps member: Defense Finance and Accounting Service, U.S. Military Retirement Pay, 8899 E. 56th Street, Indianapolis IN 46249-1200; telephone: 800-321-1080. The SBP registration request must be received by the DFAS’ office within one year of the date the order awarding the former spouse coverage is signed.
§ 25.78Benefits to Abuse Victims
Retired pay benefits are available for abuse victims even if the right to receive retired pay of the member has been forfeited because of abuse of the spouse or dependent child. 10 U.S.C. § 1408(h). Thus, abuse victim retired pay benefits are available to the abuse victim spouse if the member or former member, while a member of the armed forces and after becoming eligible to retire, engaged in abuse of the spouse or of a dependent child of the member and the spouse and if that member was required to forfeit retired pay entitlement because of the abusive conduct. 10 U.S.C. § 1408(h). For instance, if a military court-martial found the retirement-eligible member guilty of abusive conduct toward the member’s then spouse or child and, as a sentence, ordered the member’s discharge (probably dishonorable) and the forfeiture of the member’s retired pay entitlement, the abused spouse or the nonmember spouse parent of the abused child would be entitled to retired pay under this provision.
If elected, the SBP provides a monthly annuity to survivors of deceased military retiree participants. The “premium” for the plan is 6.5 percent of the selected base amount and is deducted from the gross retired pay. If the plan is not elected, retired pay payments to the former spouse cease at the military retiree’s death; if the plan is elected, the designated beneficiary will continue to receive a portion of the retired pay—that is, presumptively 55 percent of the base amount—in the form of a monthly SBP annuity. The minimum base amount is $300 per month.
In a divorce, dissolution, or annulment proceeding, the court may order a person to elect (or to enter into an agreement to elect) SBP coverage to provide an annuity to a former spouse (or to both a former spouse and a child). 10 U.S.C. § 1450(f)(4). Additionally, a member may voluntarily elect under certain circumstances to provide an annuity to a former spouse (or former spouse and child) (10 U.S.C. § 1448(b)(2), (b)(3)(A), (b)(3)(B), (b)(4)); to a special needs trust (10 U.S.C. § 1448(b)(6)); or to a person with a natural insurable interest (10 U.S.C. § 1448(b)(1)).
If a service member has elected to provide an annuity to a former spouse, whether the election was under a court order or a voluntary written agreement, the member (although it may be done by the attorney for the former spouse or by the former spouse) must provide the DFAS with a written statement in the form prescribed by the DFAS (DD Form 2656-1) and signed by both the member and the former spouse setting forth whether the election was made under the requirement of a court order or under a voluntary written agreement. 10 U.S.C. § 1448(b)(5).
If the service member entered into a voluntary written agreement to elect to provide the survivor annuity to a former spouse and the agreement has been incorporated in or ratified by court order or if the service member has been required by court order to make the election and he fails or refuses to do so, the member will be deemed to have made the election if the DFAS receives a written request on the form prescribed by the DFAS (DD Form 2656-10) from the former spouse requesting that the election be deemed to have been made. The DFAS must also receive a certified copy of the court order, regular on its face, that requires the election or incorporates, ratifies, or approves the written agreement for the service member to make the election. 10 U.S.C. § 1450(f)(3)(A).
The election will not be deemed to have been made unless the DFAS receives DD Form 2656-10, together with a certified copy of the operative court order, from the former spouse within one year of the date of the court order authorizing or requiring the election. 10 U.S.C. § 1450(f)(3)(C). If the request to deem the election is not timely made—that is, is not made within one year of the date of the divorce decree—the DFAS will refuse to deem the election, and the former spouse’s entitlement will fail as a matter of federal law.
§ 25.80Medical and Commissary Benefits for Former Spouse
Medical and Dental Benefits for Former Spouses of Active Duty Members: Dependents are entitled to receive the types of medical and dental care listed in 10 U.S.C. § 1077 in medical and dental facilities of the uniformed services subject to availability of space and facilities and the capabilities of the medical and dental staff. 10 U.S.C. § 1076. The Code lists three categories of former spouses who qualify as “dependents.”
The first category applies to an unremarried former spouse of a service member or former service member who, on the date of the final decree of divorce, dissolution, or annulment, had been married to the service member for a period of at least twenty years, during which period the service member performed at least twenty years of creditable service, and who does not have medical coverage under an employer-sponsored health plan. 10 U.S.C. § 1072(2)(F). These unremarried former spouses are sometimes called “20-20-20” former spouses. On remarriage, this category of former spouse will lose entitlement to these medical benefits forever and cannot have them reinstated.
The second category applies to an unremarried former spouse whose date of final decree of divorce, dissolution, or annulment was before April 1, 1985; who was previously married to a service member or former service member who performed at least twenty years of creditable service; whose marriage to the service member lasted for a period of at least twenty years, of which at least fifteen but fewer than twenty were during the period when the service member performed creditable service toward retirement; and who does not have medical coverage under an employer-sponsored health plan. 10 U.S.C. § 1072(2)(G). On remarriage, this category of former spouse will also lose entitlement to these medical benefits forever and cannot have them reinstated.
The third category applies to an unremarried former spouse whose date of decree of divorce, dissolution, or annulment was on or after April 1, 1985; who was previously married to a service member or former service member who performed at least twenty years of creditable service; whose marriage to the service member lasted for a period of at least twenty years, of which at least fifteen but fewer than twenty were during the period when the service member performed creditable service toward retirement; and who does not have medical coverage under an employer-sponsored health plan. The entitlement of such an unremarried former spouse (that is, one whose divorce occurred on or after April 1, 1985) to medical benefits ends after a one-year period beginning on the date of the final decree. 10 U.S.C. § 1072(2)(H).
Former spouses who do not qualify for medical coverage pursuant to the foregoing provisions may be entitled to coverage through the Continued Health Care Benefit Plan (CHCBP) for a period of up to thirty-six months from the later of the date the divorce occurs (that is, the effective date of divorce on the divorce decree) and, if applicable, the date the one-year coverage under section 1072(2)(H) expires. 10 U.S.C. § 1078a. DD Form 2837 is used to apply for this coverage.
Medical and Dental Benefits for Former Spouses of Reserve Component Members: Former spouses who qualify as dependents under the provisions of section 1072(2)(F) are entitled to the same medical and dental care as a former spouse (dependent) of an active duty member once the reserve component member attains age sixty. 10 U.S.C. § 1076(b)(1).
If the reserve component member dies before attaining age sixty, but, at the time of the reserve component member’s death, the member was not eligible for retired pay solely because he was under sixty years of age, the former spouse becomes entitled to medical and dental care to the same extent as a dependent described in section 1072(2)(F) when the reserve component member would have attained age sixty. 10 U.S.C. § 1076(b)(2).
Medical, Dental, and Vision Benefits for Former Spouses of Retirees: For former spouses who meet the requirements for continued medical and dental benefits, vision coverage became available through the Office of Personnel Management Federal Employees Dental and Vision Insurance Program effective on January 1, 2019. See www.benefeds.com.
Commissary and Exchange Privileges for Former Spouses: The unremarried former spouse is entitled to commissary and military exchange privileges to the same extent and on the same basis as the surviving spouse of a retired member of the Uniformed Services if, on the date of the final decree of divorce, dissolution, or annulment, the unremarried spouse had been married to the member or former member for a period of at least twenty years, during which period the member or former member performed at least twenty years of creditable service toward eligibility for retired or retainer pay. See 10 U.S.C. §§ 1062, 1072(2)(F). The rule for commissary and exchange privilege benefits for former spouses is often referred to as the 20-20 Rule or the 20-20-20 Rule—twenty years of creditable or qualifying military service, twenty years of marriage, and twenty years of overlap or concurrence of the two.
Date of Final Decree: The term date of final decree of divorce, dissolution, or annulment is the date the decree was signed or is the date the decree was judicially rendered if the decree is “ministerially signed” on a later date and the decree so provides. The former choice of “signing dates” is the better choice for a former spouse desiring extended medical coverage when not a 20-20-20 former spouse.
§ 25.81Military Retirement Resources
For an in-depth discussion of military retirement benefits, see the articles by James N. Higdon in the course books for the 2018 State Bar of Texas Marriage Dissolution Institute (chapter 25.1), the 2013 Advanced Family Law Drafting Course (chapter 20); the 2009 and 2007 State Bar of Texas Advanced Family Law Courses (chapters 63 and 55.3, respectively); and the 2010 and 2008 State Bar of Texas Marriage Dissolution Courses (chapters 12 and 15, respectively). These articles address the military retired pay benchmarks necessary to calculate retired pay for an active duty member and for a member of the reserve component, as well as the information needed not only at trial but also to prepare a domestic relations order for an active duty member, a retired active duty member, a reserve component/national guard member, and a retired reserve component/national guard member. Explanations are given on how to calculate gross retired pay and disposable retired pay. The articles contain a thorough analysis of cost-of-living adjustments, the SBP, and medical and commissary benefits, as well as very useful appendices. A careful and complete study of these articles is necessary to adequately represent a service member or the spouse of a service member.
For a comprehensive discussion of the recent changes to the laws concerning military retirement benefits, including the Blended Retirement System, see the article entitled “Winds of Change: New Rules for Dividing the Military Pension at Divorce,” by Brentley Tanner and Amelia Kays, published in volume 30 (2018) of the Journal of the American Academy of Matrimonial Lawyers, available at https://cdn.ymaws.com/aaml.org/resource/collection/B64341B0-6413-4F0B-AF32-DA6037C2AEAD/MAT206_9.pdf.
Additional information can be obtained by reading the articles comprising the Symposium on Military Law published in the 2009 Summer (Vol. 43, No. 2) and Fall (Vol. 43, No. 3) editions of the ABA Family Law Quarterly, as well as Mark Sullivan’s The Military Divorce Handbook and Marshal S. Willick’s Military Retirement Benefits in Divorce, all published by and available from the ABA Family Law Section.
[Sections 25.82 through 25.90 are reserved for expansion.]
VIII. Civil Service Retirement System and
Federal Employees Retirement System
§ 25.91CSRS and FERS Generally
Federal retirement benefits under the Civil Service Retirement System and the Federal Employees Retirement System are community property and are divisible on divorce. Valdez v. Ramirez, 574 S.W.2d 748, 749 (Tex. 1978); Hoppe v. Godeke, 774 S.W.2d 368, 370 (Tex. App.—Austin 1989, writ denied). The payment of those benefits under the divorce court order is governed by the appropriate federal statutes. The Civil Service Retirement System (CSRS) is governed by 5 U.S.C. §§ 8301–8351. The Federal Employees Retirement System (FERS) is governed by 5 U.S.C. §§ 8401–8480. Both systems are administered by the Office of Personnel Management. 5 U.S.C. § 8347(a) (CSRS), § 8461 (FERS). Administration of the two systems is virtually identical. (Members of Congress are covered in these retirement systems, but the provisions relating to them are not discussed here.)
The terms qualified domestic relations order, alternate payee, and other such terms are not applicable under the CSRS and the FERS and should not be used in an order dividing federal retirement benefits. (In fact, using the term qualified domestic relations order to describe the order dividing civil service retirement might result in rejection of that order by the Office of Personnel Management. See 5 C.F.R. § 838.302(a).)
The following definitions, based on the statutes and regulations, should be used in an order dividing these benefits.
Court order: The term court order means any judgment or property settlement issued or approved by any court of any state in connection with, or incident to, the divorce or annulment of a federal employee or retiree. 5 C.F.R. § 838.103.
Court order acceptable for processing: The term court order acceptable for processing means a court order that meets the requirement in the Code of Federal Regulations for dividing retirement benefits under the CSRS or the FERS. 5 C.F.R. § 838.103.
Former spouse: The term former spouse means a former spouse of an individual if the individual was an employee, as defined below, who has performed at least eighteen months of service and if the former spouse was married to the individual for at least nine months. 5 U.S.C. §§ 8331(23), 8401(12); see also 5 C.F.R. § 838.103.
Annuity: The term annuity is often used in the statutes but is not defined. The plan whereby monthly retirement benefits are paid is referred to as an annuity. See, for instance, U.S.C. title 5, sections 8331(9) and 8401(2), which define an annuitant as one who meets all requirements for entitlement to an annuity and files a claim for an annuity; sections 8331(10) and 8401(28), which define a “survivor” as an individual entitled to an annuity based on the service of a deceased employee or annuitant; and sections 8345, 8433, and 8434, which concern the benefits to be paid as an annuity.
Employee: An employee is an individual covered by the CSRS, as described in 5 U.S.C. § 8331(1), or an employee covered by the FERS, as described in 5 U.S.C. § 8401(11). See also 5 C.F.R. § 838.103.
Annuitant: The term annuitant means a former employee who, on the basis of service, meets the requirements for entitlement to an annuity and files a claim for that annuity. 5 U.S.C. §§ 8331(9), 8401(2).
Gross annuity: The term gross annuity means the amount of monthly annuity payable after reducing the self-only annuity to provide survivor annuity benefits, if any, but before any other deductions. Unless the court order expressly provides otherwise, the term gross annuity also includes any lump-sum payments made to the retiree under 5 U.S.C. sections 8343a or 8420a. 5 C.F.R. § 838.103.
Net annuity: The term net annuity means the amount of monthly annuity after deducting from the gross annuity any amounts that are (1) owed by the retiree to the United States; (2) deducted for health benefit premiums under 5 U.S.C. § 8906 and 5 C.F.R. §§ 891.401 and 891.402; (3) deducted for life insurance premiums under 5 U.S.C. § 8714a(d); (4) deducted for Medicare premiums; (5) properly withheld for federal or state income taxes, if the amounts withheld are not greater than they would be if the retiree claimed all dependents to which the retiree was entitled; or (6) already payable to another person based on a court order acceptable for processing or a child-abuse judgment enforcement order. Unless the court order expressly provides otherwise, the term net annuity also includes any lump-sum payments made to the retiree under 5 U.S.C. sections 8343a or 8420a. 5 C.F.R. § 838.103.
Self-only annuity: The term self-only annuity means the recurring payments under the CSRS or the FERS to a retiree who has elected not to provide a survivor annuity to anyone. See 5 C.F.R. § 838.103.
Survivor: The term survivor means an individual entitled to an annuity based on the service of a deceased employee or annuitant. 5 U.S.C. §§ 8331(10), 8401(28).
Survivor annuitant: The term survivor annuitant means a survivor who files a claim for an annuity. 5 U.S.C. § 8331(11).
Qualifying retirement benefits court order: The term qualifying retirement benefits court order refers to an order dividing an account under the Thrift Savings Plan. See 5 C.F.R. § 1653.2. Note that this term is used only under the Thrift Savings Plan and does not apply to an annuity under the CSRS or the FERS. See section 25.95 below.
Participant: The term participant under the Thrift Savings Plan means an individual for whom an account has been established under the plan. 5 U.S.C. § 8471(3).
Pro rata share: The term pro rata share means one-half of the fraction whose numerator is the number of months of federal civilian and military service that the employee performed during the marriage and whose denominator is the total number of months of federal civilian and military service performed by the employee. 5 C.F.R. § 838.621(a).
§ 25.93Payments under Court Order
Payments under the CSRS or the FERS that would otherwise be made to an employee or annuitant based on service shall be paid (in whole or in part) to another person in accordance with a proper state court order. In Texas, the order is a decree of divorce or annulment; a court order approving a property settlement agreement on divorce or annulment; a court order specifically treating the benefit, such as a domestic relations order signed in conjunction with a decree of divorce or annulment, incorporated by reference in such a decree, or both; or a court order or similar process in the nature of garnishment for the enforcement of a judgment rendered against the employee or annuitant for child abuse. Payments are required only after the court order or other process has been received by the Office of Personnel Management. 5 U.S.C. §§ 8345(j)(1), (j)(2), 8467(a), (b).
Both the CSRS and the FERS provide for survivor annuities. See 5 U.S.C. §§ 8341, 8441–8445. A survivor annuity may be paid whether the employee dies before or after retirement. A former spouse is entitled to a portion of that survivor annuity to the extent provided in any decree of divorce or annulment or any court order or court-approved property settlement agreement incident to the divorce. 5 U.S.C. §§ 8341(h), 8445. The maximum amount of the survivor annuity is 55 percent of the annuity the employee would have been entitled to receive if retired on the date of death or the annuity being paid on the date of the employee annuitant’s death under CSRS and 50 percent under FERS. 5 U.S.C. §§ 8341(b), (h)(2), 8445(b); 5 C.F.R. § 831.641(a).
The Federal Employees’ Retirement System Act of 1986 also includes a Thrift Savings Plan. See 5 U.S.C. § 8437. The Thrift Savings Plan is a defined contribution plan. All amounts contributed by an employee or by the governmental agency are held in trust for the employee in an individual account identified by name and Social Security number. The Thrift Savings Plan is administered by the Federal Retirement Thrift Investment Board. 5 U.S.C. § 8472.
An order dividing an account with the Thrift Savings Plan is called a “qualifying retirement benefits court order.” See 5 C.F.R. § 1653.2. The community property amount in the account can be divided between the parties, and, as a general rule, no formulas are required.
§ 25.96Addresses for Sending Court Orders
The address for sending CSRS and FERS court orders by mail is:
Office of Personnel Management
Court Ordered Benefits Branch
P.O. Box 17
Washington, DC 20044-0017
The address for delivery of court orders by process servers, express carriers, or other forms of handcarried delivery is:
United States Office of Personnel Management
Court-Ordered Benefits Section
1900 E Street, NW
Washington, DC 20415-0002
5 C.F.R. app. A to subpt. A of pt. 838.
[Sections 25.97 through 25.100 are reserved for expansion.]
§ 25.101Railroad Retirement Generally
The Railroad Retirement Act of 1974, title 45, chapter 9, subchapter IV, of the United States Code, governs the various federal retirement benefits available to railroad employees. See 45 U.S.C. ch. 9, subch. IV. The railroad retirement system provides two levels of benefits called “tiers.” Tier I is calculated using Social Security benefit formulas and includes earnings both in the railroad industry and in employment covered by the Social Security Act. Tier II is based on railroad earnings alone. See 45 U.S.C. §§ 231a(a), 231b.
Tier I benefits are not divisible on divorce. 45 U.S.C. § 231m; Kamel v. Kamel, 721 S.W.2d 450, 452–53 (Tex. App.—Tyler 1986, no writ). Tier II benefits under the railroad retirement system may be divided in a decree of divorce or annulment or in a court-approved property settlement incident to such a decree. 45 U.S.C. § 231m. The decree must be a final decree. 20 C.F.R. § 295.2.
Citations from the Railroad Retirement Act for those components of a railroad retirement annuity that may be divided in connection with a proceeding for dissolution of marriage are as follows:
1.The tier II annuity component is provided for in section 3(b) of the Act (45 U.S.C. § 231b(b)).
2.The vested dual benefit is provided for in section 3(h) of the Act (45 U.S.C. § 231b(h)).
3.The supplemental annuity is provided for in section 3(e) of the Act (45 U.S.C. § 231b(e)).
4.The overall minimum increase is provided for in section 3(f)(1) of the Act (45 U.S.C. § 231b(f)(1)).
Additionally, a divorced spouse who is not remarried is eligible for a divorced spouse annuity separate from the tier II benefits awarded to that spouse if that spouse meets the requirements of section 216(d) of the Social Security Act (42 U.S.C. § 416(d)) and section 202(b) of the Social Security Act (42 U.S.C. § 402(b)). The divorced spouse annuity is not divisible on divorce but is automatically payable to the divorced spouse if the spouse is eligible and makes application for payment. Basically, the spouse must be married to the railroad employee for a minimum of ten years at divorce to be eligible. The eligibility requirements are the same as those for a divorced spouse benefit under the Social Security Act. Railroad retirement is administered by the Railroad Retirement Board. 45 U.S.C. § 231f. The Railroad Retirement Board will provide on written request a statement showing the amount of tier I and tier II benefits earned by the railroad employee and the amount of the divorced spouse benefit to be paid to the divorced spouse.
See Railroad Retirement Board form IB-2 (2-11), Railroad Retirement and Survivor Benefits, available at www.rrb.gov/sites/default/files/2021-02/IB-2%28web%29
.pdf.
The vocabulary used in the railroad retirement system is different from that used in any other retirement system. The following terms are used by the Railroad Retirement Board and in the regulations governing railroad retirement.
Annuity: The term annuity means a monthly sum that is payable on the first day of each calendar month for the accrual during the preceding calendar month. 45 U.S.C. § 231(p).
Tier I: Annuities under the Railroad Retirement Act are composed of independently calculated segments known as “tiers.” Tier I is calculated using Social Security benefit formulas and includes earnings in the railroad industry and in employment covered by the Social Security Act. See 45 U.S.C. § 231b.
Tier II: Tier II is an annuity based on railroad retirement earnings alone. See 45 U.S.C. § 231b.
Employee: The term employee means the employee under the railroad retirement system. 45 U.S.C. § 231(b); 20 C.F.R. § 295.2.
Spouse or former spouse: The term spouse or former spouse means the husband or wife or former husband or wife of an employee who, on or before the date of a court order, was married to the employee. 20 C.F.R. § 295.2.
Court: As applicable in this discussion, the term court means a court with jurisdiction to hear divorce cases. See 20 C.F.R. § 295.2.
Court decree: The term court decree means a final decree of divorce, dissolution, or annulment in accordance with state law. 20 C.F.R. § 295.2.
Final decree: The term final decree means a decree from which no appeal may be taken or from which no appeal has been taken within the time allowed for taking such appeals under the applicable laws or from which an appeal has been taken and finally decided. 20 C.F.R. § 295.2.
Property settlement: The term property settlement means an agreement between the parties to a suit for divorce, dissolution, or annulment in which they expressly agree to a division of their property rights and which is incorporated in the final decree. The property settlement must be filed with the court in connection with the suit or otherwise presented to the court in a suit in accordance with the law of the jurisdiction. An agreement assigning or transferring property between spouses is not a property settlement unless it is subsequently approved by a court in connection with a divorce, dissolution, or annulment. 20 C.F.R. § 295.2.
§ 25.103Requirements for Court Decree
The Railroad Retirement Board will honor a court decree or a property settlement that meets the following criteria:
1.Award of benefits. The court decree or property settlement must provide that the spouse or former spouse is awarded payments from railroad retirement annuities payable to the railroad employee. 20 C.F.R. § 295.3(a)(1).
2.Specific amount. The court decree or property settlement must specify an amount to be paid to the spouse or former spouse. 20 C.F.R. § 295.3(a)(2).
3.Obligation of board to pay. The court decree or property settlement must obligate the Railroad Retirement Board to make payments directly to the spouse or former spouse. 20 C.F.R. § 295.3(a)(3).
4.Identification of parties. The court decree or property settlement must clearly identify both the employee and the spouse or former spouse to whom payments are to be made. 20 C.F.R. § 295.3(a)(4).
5.Recently certified copy. The court decree or property settlement submitted to the Railroad Retirement Board must be a recently certified copy of the document filed with the court. In the case of a court-approved property settlement, both the settlement and any decree or order incorporating or approving the settlement must be provided. 20 C.F.R. § 295.3(a)(5).
The court decree should state the date on which it was signed. See 20 C.F.R. § 295.3(b); Tex. R. Civ. P. 306a. See Railroad Retirement Board form G-177d (09/10), Partition of Annuities by Court Decree, available at www.rrb.gov/Benefits/G-177D.
The division of railroad retirement non–tier I benefits can be included in the body of the decree of divorce or the property settlement agreement. The property settlement agreement must be on file and approved by the court granting the divorce. Also, the division can be accomplished by a separate order. The Railroad Retirement Board has an approved order dividing railroad retirement benefits available on request.
Warning: It is important that the divisible benefits be identified in the order as “non–tier I” benefits instead of “tier II” benefits only. The former identification allows the ex-spouse of the railroad employee to receive that person’s share of all divisible components under the Railroad Retirement Act, that is, the tier II component, the supplemental annuity (if the railroad employee is eligible), the vested dual benefit (if the railroad employee is eligible), and any overall minimum increase in the annuity. If the divided benefits are identified only as tier II benefits in the order, the divorced spouse is limited to receiving only a portion of the tier II benefits and will not receive any of the other divisible components even if the employee is eligible for these benefits.
If the non–tier I benefits are divided in the actual decree of divorce or property settlement agreement, a certified copy of the divorce decree and property settlement agreement (if the division is made in that instrument) must be submitted to the General Counsel, Railroad Retirement Board, 844 North Rush Street, Chicago, IL 60611-1275. 20 C.F.R. § 295.3(d).
If the division is made in a separate order, a certified copy of the order must also be submitted to the above address. Currently, preapproval may be obtained by faxing the proposed order to 312-751-7102.
§ 25.105Private Retirement Plans Associated with Railroad Employees
In addition to the federally created railroad retirement benefits, each union and each railroad may have additional private plans that involve significant assets and that should not be overlooked.
§ 25.106Cessation of Divorced Spouse Benefits
Benefits for the divorced spouse end—
1.on the last day of the month before the month in which the divorced spouse dies;
2.on the date on which the employee annuity terminates;
3.on the date required by the court decree or property settlement;
4.when the employee dies (the divorced spouse may qualify for a surviving divorced spouse annuity at this time);
5.when the divorced spouse remarries;
6.when the divorced spouse becomes entitled to a Social Security benefit based on the divorced spouse’s own earnings and on which the Social Security benefit (before any reductions are made) is greater than the maximum amount of the annuity that he was entitled to receive; or
7.when the divorced spouse becomes entitled to a spouse’s annuity, a remarried widow(er)’s annuity, or a surviving divorced spouse’s annuity under a different Railroad Retirement Board claim number that is greater than the amount that he was entitled to as a divorced spouse.
See 20 C.F.R. § 295.5; General Conditions under Which a Person Is Entitled to a Railroad Retirement Divorced Spouse Annuity (G-177C (08-07)), available at www.rrb.gov/Benefits/G-177C.
§ 25.107Conversion of Annuity Received as Divorced Spouse to Annuity Received as Surviving Spouse
There is no need for the surviving divorced spouse to file a new application if the divorced spouse was in receipt of an annuity in the month before the month in which the employee dies. See 20 C.F.R. § 217.8(o). On notification of the death of an employee, the divorced spouse’s annuity will be converted to a surviving divorced spouse’s annuity, if survivor benefits are payable by the board. If not, the case will be transferred to the Social Security Administration for payment of a surviving divorced spouse’s annuity under the Social Security Act.
§ 25.108Entitlement as Remarried Widow(er)
Section 216.63 of the Railroad Retirement Board’s regulations defines a remarried widow(er) as a widow(er) of a railroad employee with at least ten years of service and who had a current connection with the railroad industry and—
1.has remarried either after attaining age sixty (or age fifty if disabled) or before age sixty if the marriage has terminated;
2.is not entitled to a Social Security benefit that is equal to or higher than the remarried widow(er)’s benefit;
3.has attained retirement age;
4.is at least age fifty but less than age sixty if disabled;
5.has not attained retirement age but has a minor or disabled child of the employee in her or his care or custody; or
6.is at least age sixty but has not attained retirement age (in which case the annuity is reduced for age).
On request, the former spouse must submit additional documentation the board requires, including but not limited to—
1.identifying information concerning the employee, such as Social Security number, railroad retirement claim number, full name, date of birth, and current address;
2.identifying information concerning the former spouse, such as Social Security number, full name, and current address;
3.a statement that no condition of the law of the jurisdiction in which the decree was entered or the property settlement approved and no condition contained in the decree or agreement that requires termination of payment has occurred and, if any such condition does occur, that the former spouse will immediately notify the Railroad Retirement Board; and
4.a statement that the spouse agrees to repay any erroneous payment arising from the occurrence of any such condition.
§ 25.110Delivery of Court Decree to Board
Any court decree or property settlement must be delivered to the General Counsel of the Railroad Retirement Board, 844 North Rush Street, Chicago, IL 60611. 20 C.F.R. § 295.3(d).
[Sections 25.111 through 25.120 are reserved for expansion.]
X. Use of QDRO for Payment of Spousal Maintenance
§ 25.121Continuing Jurisdiction for Order for Payment of Spousal Maintenance
Subchapter H of chapter 8 of the Texas Family Code concerns the use of qualified domestic relations orders or similar orders (QDROs) for the payment of court-ordered spousal maintenance. The court shall liberally construe subchapter H to effect payment of pension, retirement plan, or other employee benefits for the satisfaction of the obligor’s maintenance obligation. Tex. Fam. Code § 8.356. To the extent subchapter H conflicts with chapter 804 of the Texas Government Code or with federal law, the latter prevails. Tex. Fam. Code § 8.359.
The court that rendered an order for the payment of maintenance, or the court that obtains jurisdiction to enforce a maintenance order, has continuing jurisdiction to render enforceable QDROs permitting payment of pension, retirement plan, or other employee benefits to an alternate payee or other lawful payee to satisfy amounts due under the maintenance order. A maintenance order includes a temporary or final order for maintenance and arrears and interest with respect to that order. Unless prohibited by federal law, a suit seeking such an order applies to a pension, retirement plan, or other employee benefit, regardless of whether the plan or benefit is private, state, or federal; is subject to another QDRO; is property that is the subject of a pending proceeding for dissolution of a marriage; is property disposed of in a previous decree for dissolution of a marriage; or is the subject of a premarital or marital property agreement under chapter 4 of the Texas Family Code. The court retains jurisdiction to render a QDRO until all maintenance due under the maintenance order, including arrearages and interest, has been paid. Tex. Fam. Code § 8.351. Payments under a QDRO under subchapter H may be made by direct payment or other method ordered by the court. Tex. Fam. Code § 8.358.
A party to a maintenance order may petition the court for a QDRO in an original suit or in an action for enforcement of the maintenance order. Each party whose rights may be affected by the petition is entitled to receive notice. Tex. Fam. Code § 8.352.
While a suit for a QDRO is pending or during the appeal of an enforcement order, on a party’s motion or the court’s own motion and after notice and hearing, the court may render an appropriate order for the preservation of the pension, retirement plan, or other employee benefits and protection of the parties as the court considers necessary. Such an order may include the granting of a temporary restraining order and temporary injunction and is not subject to interlocutory appeal. Tex. Fam. Code § 8.353.
If the QDRO has been rejected by the plan or agency, the court retains continuing jurisdiction to render a corrected QDRO that will qualify with the plan. Tex. Fam. Code § 8.354.
Amendment of QDRO: A court that renders a QDRO retains continuing jurisdiction to amend the order to correct it or clarify its terms or add language to provide for the collection of maintenance. The court also retains continuing jurisdiction to convert the amount or frequency of payments under the order to a formula that complies with the terms of the plan or to vacate or terminate the order. Such an amended domestic relations order must be submitted to the plan administrator or equivalent to determine whether the amended order satisfies the requirements of a QDRO. If the order is rejected by the plan, the court retains continuing jurisdiction to render a corrected QDRO that will qualify with the plan. Tex. Fam. Code § 8.355; see Tex. Fam. Code § 8.354.
Attorney’s Fees: In a proceeding under subchapter H, the court may order the obligor to pay reasonable attorney’s fees incurred by a party to obtain the order, all court costs, and all fees charged by a plan administrator for the QDRO. The fees and costs may be enforced by any means available for the enforcement of a judgment for debt. Tex. Fam. Code § 8.357.
§ 25.122Practical Considerations
In using a QDRO to collect spousal maintenance, it is important to remember several facts. Most important is that the QDRO cannot require a plan to provide any type or form of benefit or option not provided under the plan. Thus, a QDRO for a defined benefit plan with a monthly benefit may not be used if collection of a lump sum for arrearages is sought. A defined contribution plan, such as a 401(k), would be the proper plan to use to collect a lump sum.
When requesting the amount owed, it is important to remember that the spouse receiving the spousal maintenance is to receive those payments tax free. When retirement plans make a distribution to the alternate payee, they will almost always automatically withhold 20 percent of the distribution as federal withholding. Thus, an amount over and above the arrearage (or monthly maintenance amount) should be requested to cover the tax withholding.
A QDRO for spousal maintenance (referred to as alimony in ERISA) is very similar to a QDRO for marital property rights. The main difference in drafting a QDRO for a defined contribution plan is that instead of stating that the QDRO “relates to the provision of marital property rights,” the order should state that it “relates to the provision of alimony payments.” For a defined benefit plan, in addition to that change, an end date to the payments should be provided in the QDRO.
[Sections 25.123 through 25.130 are reserved for expansion.]
XI. Use of QDRO for Payment of Child Support
§ 25.131Continuing Jurisdiction for Order for Payment of Child Support
Subchapter J of chapter 157 of the Texas Family Code concerns the use of qualified domestic relations orders or similar orders (QDROs) for the payment of child support. The court shall liberally construe subchapter J to effect payment of pension, retirement plan, or other employee benefits for the satisfaction of the obligor’s child support obligation. Tex. Fam. Code § 157.506. To the extent subchapter J conflicts with chapter 804 of the Texas Government Code or with federal law, the latter prevails. Tex. Fam. Code § 157.508.
The court that rendered an order for the payment of child support, or the court that obtains jurisdiction to enforce a child support order under chapter 159 of the Family Code, has continuing jurisdiction to render enforceable QDROs permitting payment of pension, retirement plan, or other employee benefits to an alternate payee or other lawful payee to satisfy amounts due under the child support order. A child support order includes a temporary or final order for child support, medical support, or dental support and arrears and interest with respect to that order. Unless prohibited by federal law, a suit seeking such an order applies to a pension, retirement plan, or other employee benefit, regardless of whether the plan or benefit is private, state, or federal; is subject to another QDRO; is property that is the subject of a pending proceeding for dissolution of a marriage; is property disposed of in a previous decree for dissolution of a marriage; or is the subject of a premarital or marital property agreement under chapter 4 of the Family Code. The court retains jurisdiction to render a QDRO until all child support due under the child support order, including arrearages and interest, has been paid. Tex. Fam. Code § 157.501.
A party to a child support order, or the title IV-D agency in a title IV-D case, may petition the court for a QDRO in an original suit or in an action for child support enforcement. Each party whose rights may be affected by the petition is entitled to receive notice. Tex. Fam. Code § 157.502.
While a suit for a QDRO is pending or during the appeal of an enforcement order, on a party’s motion or the court’s own motion and after notice and hearing, the court may render an appropriate order for the preservation of the pension, retirement plan, or other employee benefits and protection of the parties as the court considers necessary. Such an order may include the granting of a temporary restraining order and temporary injunction and is not subject to interlocutory appeal. Tex. Fam. Code § 157.503.
If the QDRO has been rejected by the plan or agency, the court retains continuing jurisdiction to render a corrected QDRO that will qualify with the plan. Tex. Fam. Code § 157.504.
Amendment of QDRO: A court that renders a QDRO retains continuing jurisdiction to amend the order to correct it or clarify its terms or add language to provide for the collection of child support. The court also retains continuing jurisdiction to convert the amount or frequency of payments under the order to a formula that complies with the terms of the plan or to vacate or terminate the order. Such an amended domestic relations order must be submitted to the plan administrator or equivalent to determine whether the amended order satisfies the requirements of a QDRO. If the order is rejected by the plan, the court retains continuing jurisdiction to render a corrected QDRO that will qualify with the plan. Tex. Fam. Code § 157.505; see Tex. Fam. Code § 157.504.
Attorney’s Fees: In a proceeding under subchapter J, the court may order the obligor to pay reasonable attorney’s fees incurred by a party to obtain the order, all court costs, and all fees charged by a plan administrator for the QDRO. The fees and costs may be enforced by any means available for the enforcement of child support, including contempt. Tex. Fam. Code § 157.507.
§ 25.132Practical Considerations
When using a QDRO for the payment of child support, it is important to remember several facts. Most important is that the QDRO cannot require a plan to provide any type or form of benefit or option not provided under the plan. Thus, if collection of monthly child support is sought, the obligor must have a pension plan and be eligible to receive benefits from that plan. On the other hand, if collection of a one-time lump-sum payment for past-due child support is sought, a defined contribution plan, such as a 401(k), would be the proper plan to use.
It is important to remember—for two reasons—that child support payments are taxable to the obligor. First, under a QDRO, benefits paid to a spouse or a former spouse are taxable to that person. To ensure that the child support benefits are taxed to the participant and that the IRS Form 1099-R is issued to the participant, not to the obligee, the person named as the alternate payee in the QDRO must be the child, even if the parent is the one technically receiving the payments. The QDRO should list the parent as the legal representative or guardian and have payments and correspondence directed to that parent. In the section of the QDRO addressing taxes, it should also be made clear that taxes are the responsibility of the participant.
Second, even though the Form 1099-R and ultimate tax bill will be the responsibility of the participant, the plan will almost always still deduct 20 percent for federal withholding from the payment to the alternate payee. Thus, an amount over and above the arrearage (or monthly child support amount) should be requested to cover the tax withholding.
In drafting a QDRO for child support for a defined contribution plan, instead of stating that the QDRO “relates to the provision of marital property rights,” the order should state that it “relates to the provision of child support.” For a defined benefit plan, in addition to that change, an end date to the payments should be provided in the QDRO.
[Sections 25.133 through 25.140 are reserved for expansion.]
XII. Stock Options and Restricted Stock
§ 25.141Stock Options and Restricted Stock
Section 3.007 of the Family Code provides guidance about how to characterize an employee spouse’s stock options or restricted stock when employment both during and outside the period of marriage is required to reap the benefit. The formula used to calculate the percentage of community interest is basically the same formula set forth in In re Marriage of Nelson, 177 Cal. App. 3d 150, 222 Cal. Rptr. 790 (1986).
The applicable methodology depends on the “grant date” of the option or restricted stock. If the date of grant occurs during the marriage but continued employment following the date of dissolution of the marriage is required for vesting or exercise, the calculation will yield the percentage of the separate interest, even though the right is not vested and the right to exercise has not yet occurred. See Tex. Fam. Code § 3.007(d)(2). If the date of grant occurred before marriage but continued employment during marriage is required for vesting or exercise, the character of the option or stock right will be calculated in a similar manner. See Tex. Fam. Code § 3.007(d)(1). The applicable formulas are shown below.
|
Grant before marriage (with required employment during marriage): |
|
|
Separate-property interest = |
Period from date of grant until marriage (plus, if applicable, period from date of dissolution of marriage until date grant could be exercised or restriction removed) |
|
Period from date of grant until date grant could be exercised or restriction removed |
|
|
Grant during marriage (with required employment after dissolution of marriage): |
|
|
Separate-property interest = |
Period from date of dissolution until date grant could be exercised or restriction removed |
|
Period from date of grant until date grant could be exercised or restriction removed |
|
Obviously, the remaining percentage balance will be considered the community interest. It will be necessary to use the formulas above for each different set (grant dates) of stock options or restricted stock grants. The computations described above apply to each component of the benefit requiring varying periods of employment before the grant could be exercised or the restriction removed. Tex. Fam. Code § 3.007(e).
It is important to note that most stock plans (other than Employee Stock Ownership Plans) do not permit nonemployees to hold the unvested shares or options. Thus the employee spouse will not be able to transfer the award to the nonemployee spouse at the time of the divorce. To protect the nonemployee spouse, the award language in the decree should impose very detailed and enforceable obligations on the employee spouse, and a separate order dividing the stock and naming the employee as constructive trustee for the benefit of the nonemployee, along with additional provisions such as information on taxes, how the options are exercised, and the obligations of each party, should be prepared. A mediated settlement agreement should also include detailed language regarding stock options and a separate constructive trust order.
[Sections 25.142 through 25.150 are reserved for expansion.]
The following websites contain information relating to the topic of this chapter:
Defense Finance and Accounting Service (§ 25.77)
www.dfas.mil/garnishment/usfspa/apply
Railroad Retirement Board form IB-2 (2-05) (“Railroad Retirement and Survivor Benefits”) (§ 25.101)
www.rrb.gov/sites/default/files/2021-02/IB-2%28web%29.pdf
Railroad Retirement Board form G-177d (“Partition of Annuities by Court Decree”) (§ 25.103)
www.rrb.gov/Benefits/G-177D
Railroad Retirement Board form G-177C (“General Conditions under Which a Person Is Entitled to a Railroad Retirement Divorced Spouse Annuity”) (§ 25.106)
www.rrb.gov/Benefits/G-177C
Court Orders and Powers of Attorney (Thrift Savings Plan)
www.tsp.gov/publications/tspbk11.pdf
Thrift Savings Plan Retirement Benefits Court Order Division Packet
www.tsp.gov/forms/tsp-92.pdf
A Handbook for Attorneys on Court-ordered Retirement, Health Benefits and Life Insurance Under the Civil Service Retirement Benefits, Federal Employees Retirement Benefits, Federal Employees Health Benefits, Federal Employees Group Life Insurance Program
www.opm.gov/retirement-services/publications-forms/pamphlets/ri38-116.pdf
QDROs—The Division of Retirement Benefits Through Qualified Domestic Relations Orders (Department of Labor)
www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/
publications/qdros.pdf