When is the value of a pension FROZEN at date of divorce in a QDRO?

The award to Alternate Payee is almost always 50% of the marital interest value as of the date of retirement. In most cases, the marital interest is determined by the "Marital Fraction" (also known as the "Time Rule formula" or “Coverture Fraction”) For almost all states, the Marital Fraction in a QDRO is generally the credited service (“credits”) accrued during marriage over the total credits at retirement. However, for a few states the Marital Fraction is the credits accrued during marriage over the total credits up to (generally) date of divorce (“Frozen Marital Fraction”).

The Frozen Marital Fraction freezes the division as of the date of divorce as if the participant ceased to participate in the plan as of the date of divorce. (Note if the participant did not accrue benefits before marriage, the marital fraction is “1” so that award can be written as whatever percentage (e.g., 50%) of the participant’s accrued benefit as of the date of divorce. The alternate payee does not benefit from any increases in a participant’s service or pay that occur after the divorce.

A few state laws require that the value of a defined benefit plan paid to a former spouse (“alternate payee”) be frozen at the date of divorce in a QDRO. Generally, this situation only applies to participants who are not yet retired.

As of the date of this article, the following states apply the Frozen Marital Fraction to QDROs: Florida [Boyett (703 So. 2nd 451, Fla. 1997)], Texas [Texas Grier (731 S.W2nd 931, Tex, 1987)], and Virginia [Code of Virginia-Domestic Relations § 20-107.3; Primm (12 Va. App. 1036; 407 S.E.2d 45, 1991)]. Other states such as Maryland, New Jersey and North Carolina may apply the Frozen Marital Fraction if the judge decides to value the retirement benefit rather than divide it with a QDRO and offset that value against some other marital asset. Other states such as Illinois and Massachusetts may use some variation of the Frozen Marital Fraction based on what the judge decides.

Also, for military members, the Frozen Marital Fraction may apply depending on when the parties divorce. The military pay center for the Armed Forces Retirement System (“military pension”) may only pay an alternate payee his or her share of the participant’s pension valued hypothetically as of the date of divorce. [See National Defense Authorization Act (NDAA 2017), for the fiscal year 2017 (“NDAA 2017”). Under the NDAA 2017, payment from the military pay center is limited to "the amount of retired pay to which the member would have been entitled using the member's retired pay base and years of service on the date of the decree of divorce, dissolution, annulment, or legal separation" and increased by the cost-of-living amounts granted to military retirees from the time of the divorce, dissolution, annulment, or legal separation to the date the member retires. This federal law preempts state law on the issue of what can be paid to an alternate payee from the military pay center by court order. However, for the majority of states which do not follow the Frozen Marital Fraction, there does not appear to be any limitation on the alternate payee recovering the difference between what the hypothetical value of the pension would be at date of divorce to the value of the pension at date of the participant’s retirement. This issue has not been litigated to date. However, the reality is that most alternate payees will not pursue obtaining these additional funds either due to a lack of understanding of the law or lack of funds for legal costs to pursue the matter.