A defined benefit plan is an employer-sponsored retirement plan where employee benefits are determined pursuant to a formula which may involve factors such as salary history, duration of employment, or other criteria.  Pensions are examples of defined benefit plans.   

In the context of a divorce, the Court may award the non-participant spouse up to 50% of the “marital share” of the participant’s defined benefit plan by QDRO.  The awarded portion of the marital share may take the form of a specified percentage of the account balance, or a fraction/percentage of the marital share defined as of a certain date.  In addition, the non-participant spouse may be entitled to a portion of other economic improvements on the participant’s benefit, depending upon the features of the particular plan and what is ordered by the Court or agreed upon by the parties.

In the course of negotiating a settlement or preparing for trial, one issue to be considered is whether the non-participant spouse will take his or her share of the participant’s defined benefit plan as a shared interest or as a separate interest.  Each of these options has benefits and disadvantages and must be considered carefully in the context of the particular defined benefit plan.    

If a shared interest is selected, the payments to be received by the non-participant spouse will begin at the same time the participant begins receiving his or her benefit, and will be made to the non-participant spouse in the form elected by the participant.  The payments to the non-participant spouse will also cease upon the death of the participant unless survivorship benefits are negotiated, because the duration of the benefit is keyed to the participant’s lifetime.  This method for dividing a defined benefit plan is sometimes referred to as an “if, as, and when received” approach.

If a separate interest is selected, the payments to be received by the non-participant spouse may begin, within the parameters of the particular plan, when the non-participant spouse chooses, and will be made to the non-participant spouse in the form he or she elects (again, within the parameters of the particular plan).  The payments to the non-participant spouse will not cease upon the death of the participant because the duration of the benefit is keyed on the non-participant spouse’s lifetime.  Unfortunately, if the participant is already in pay status, this method for dividing the participant’s interest in the defined benefit plan is usually not available.     

A defined contribution plan is an employer-sponsored retirement plan where the amount of the employer's annual contribution is specified and the employee can also elect to make contributions.  401(k) plans and profit-sharing plans are examples of defined contribution plans.   

In the context of a divorce, the Court may award the non-participant spouse up to 50% of the “marital share” of the participant’s defined contribution plan by QDRO.  The awarded portion of the marital share may take the form of a specified dollar amount, a specified percentage of the account balance, or a fraction/percentage of the marital share defined as of a certain date.  In addition, the non-participant spouse may be entitled to a portion of other economic improvements on the participant’s benefit, depending upon the features of the particular plan and what is ordered by the Court or agreed upon by the parties.

In the course of negotiating a settlement or preparing for trial, one issue to be considered is whether the non-participant spouse will request interest, gains, and losses on his or her award.  If the non-participant spouse is awarded or given interest, gains, and losses, his or her awarded portion will be increased (or reduced, as the case may be), depending upon the market, from the date of the award (usually the date of separation) to the date the Administrator of the Plan distributes the award to the non-participant (i.e., typically by establishing a separate account for the non-participant).  If the non-participant spouse is not awarded or given interest, gains, and losses, he or she will only receive his or her awarded portion.  Obviously, whether a non-participant chooses to ask for interest, gains, and losses will depend upon the then-current posture of the market, and may represent a gamble since there is often a substantial delay between when the Court makes its equitable distribution award (or the parties sign a Settlement Agreement) and the administration of the QDRO (and, therefore, the division of the retirement benefits).