Section 16.25 Designation of the Alternate Payee as Surviving Spouse

• Library: Family Law Deskbook and 2014 Supp

b. (§16.25) Designation of the Alternate Payee as Surviving Spouse

In a separate interest QDRO, the death of the participant has no effect on the separate interest established for the alternate payee. In the case of most plans, under which a separate interest QDRO has been entered, the alternate payee’s account is soon established following the plan administrator’s determination of the “qualified” status of the DRO, and as such, the account is not subject to forfeiture in the alternate payee’s hands. Accordingly, it is usually not necessary to designate the alternate payee as surviving spouse in a separate interest QDRO. In fact, if there is a surviving spouse designation in a separate interest QDRO, it is possible that the alternate payee is entitled to the alternate payee’s assigned separate interest, and in the event of the participant/spouse’s earlier death before distribution of the alternate payee’s interest, the alternate payee also would receive the surviving spouse’s (usually 50%) of the remainder of the participant’s benefits. In an equally divided separate interest QDRO, this could effectively transfer up to 75% to the alternate payee! Notwithstanding the above, the QDRO drafter could include, in a separate interest QDRO, a provision that states that the alternate payee shall be designated as surviving spouse, in the event that the participant dies before establishment of the separate account, only on that portion assigned to the alternate payee in the judgment. A basic format for the “temporary” surviving spouse designation is as follows:

The alternate payee shall be treated as the surviving spouse of the participant in the event of the participant’s death before the earlier of the date of payment of the amount awarded to the alternate payee, or before the establishment of a separate account for the benefit of alternate payee, as provided in Internal Revenue Code Section 414(p)(5), for the portion of benefits awarded in this Order. Once the right to receive the benefits awarded herein has been effectuated, or a separate account has otherwise been established for the benefit of alternate payee, the provisions of this paragraph shall no longer apply.

With respect to a stream of payments QDRO, it is important that the order designate the spouse as surviving spouse to preserve the alternate payee’s benefit in the event of the participant’s death, whether the death occurs preretirement or postretirement. Accordingly, the order should state that the alternate payee is designated as surviving spouse for purposes of both the preretirement and...