Earlier this year, the Kentucky legislature passed HB 289 which requires both Kentucky Retirement Systems (KRS) and Kentucky Teachers Retirement Systems (KTRS) to recognize qualified domestic relations orders (QDRO). [As an aside, I apologize now for the alphabet soup nature of this post. It is unavoidable when you start talking about retirement plans in general and the government's retirement plans in particular].
A QDRO is a special kind of order that is entered by a divorce court to divide the marital portion of one or both spouse's retirement account. Previously, KRS actually accepted QDROs until 2000 when a law was passed that exempted those pension benefits in the event of divorce. That law was actually repealed in 2002, but KRS still refused to honor QDROs because the revised law did not include specific language that allowed them. (Confused yet?) This resulted in an anomaly in which KRS administered QDROs issued prior to 2000, but none since then even though the law that banned them was repealed.
KTRS has not previously recognized QDROs, and this combined with recent caselaw has created some odd situations. Recent Kentucky Court of Appeals decisions resulted in come courts only exempting a teacher's retirement to the extent of the value of the non-teacher's spouse's retirement, but only if the non-teacher spouse actually had a retirement account. In other words, if you were a non-teach spouse, you could have come out better in a divorce case if you had $5.00 in an IRA rather than having no retirement account at all because by having the small/negligible retirement account, you made the balance of the teacher spouse's retirement divisible.
With the passage of the new law, KRS & KRTS will now recognize QDROs, but only if the QDRO is prepared on a form that is issued by KRS. This is a form that (1) has yet to be issued with the law going into effect in a matter of weeks, and (2) opens up a whole other host of problems with blindly being required to follow a form issued by the plan administrator (but that's for another article). In fact, according to the Spring 2010 edition of the Member Newsletter issued by the KRS, if you currently have one of those pre-2000 QDROs, you will have to actually go back to court and have the judge reissue it on KRS' new, yet-to-be drafted forms [You know the old adage, "If it ain't broke, let the government fix it."]
In the end, the change in the law will result in a leveling of the playing field in teacher and state employee property settlements. If you are state employee, a Kentucky teacher, or divorcing one, you should make sure you are aware of this new law and its ramifications.