Community Property Pensions
Any portion of a pension that was earned during marriage will be considered community property, also called marital property, with each spouse entitled to half of the pension proceeds after divorce. However, because a pension is generally earned over time, it can be difficult for the law to determine how much of the pension was earned during marriage and how much was earned before or after marriage. California law has developed two methods of calculating the marital portion of a pension.
Reservation of Jurisdiction
Generally, California courts use the "reservation of jurisdiction" method to divide up a pension. With this formula, the court divides the years during which the couple was married by the total number of years in which one spouse has been earning her pension and the resulting number is the percentage of the pension owed to the community. When the pensioned spouse retires, the court compels her to pay half of each pension payment to her spouse up to the amount he's entitled to. If the pensioned spouse chooses to work beyond retirement age, the law allows the non-pensioned spouse to demand his portion of the pension from the date the pensioned spouse became eligible to retire and take her pension.
Cash Out Division
Some divorcing spouses choose to "cash out" the pension and settle up as soon as possible, without waiting for pension proceeds to be distributed. To cash out, the parties ask an actuary (a statistical and financial specialist) to calculate the present value of the pension. Once the actuary comes up with a number, each party is entitled to half of that amount. The pensioned spouse keeps his entire pension and gives the non-pensioned spouse sufficient community property to compensate her for her share of the pension.
A QDRO, or Qualified Domestic Relations Order, is a court-issued order that grants one party the right to some portion of another party's benefits. Divorcing parties who seek to divide pension payments obtain a QDRO in order to ensure that the division is honored by the employer or company distributing the pension. The QDRO may also allow the non-pensioned spouse to move her share of the pension funds directly into an IRA or other retirement fund without incurring income tax liability. The QDRO may be prepared separately or as part of the actual divorce settlement.