A pension is not only a reward for your years of hard work but also a safeguard to ensure your financial stability in the future. However, it’s also one of the most valuable marital assets you have. As such, if you are considering getting a divorce, you should understand what can happen to pensions in a divorce and take steps to protect this investment that your years of loyal employment made for your future.
What Happens to Pensions When You Get a Divorce?
Pensions are considered a defined benefit plan (as opposed to 401(k)s and IRAs which are defined contribution plans) which means that determining the true value of the asset can be tricky. The cash value of the pension will tell you how much it would be worth if you were to take it all in a lump sum, but since most people opt to receive monthly payments after retirement, this value isn’t quite accurate. Additionally, benefits that were accumulated prior to the pension holder getting married would not be taken into consideration when dividing the asset. It deserves to be noted that in Virginia, no more than half of a person’s pension can go to their spouse in the divorce.
When dividing a pension, there are two ways to do it:
- Have an actuary service determine the pension’s current value and cash out the fund in one lump sum that can be split between the two spouses.
- Determine what the value of the pension will be at retirement, how it is to be divided, and defer payment until the pension-holding spouse retires.
In order to obtain a portion of your pension, your spouse must request it during the division of marital assets as part of the divorce process, not when you retire. In order to divide a pension in a divorce, the court must enter a Qualified Domestic Relations Order (QDRO). This order authorizes your employer to award a portion of your retirement account to your spouse. Keep in mind that fees for implementing a QDRO can cost you and your spouse up to $500 for each account.
It bears mentioning that military pensions as well as federal civilian employee pensions are regulated by different rules. A divorce attorney with experience in handling military divorces can help you understand how this process works.
Are Pensions Considered Marital Property?
Pensions are generally considered a joint asset and subject to marital property division during the divorce process. However, there are some exceptions, including:
- The portion of your pension that you earned before you were married.
- Pensions that are included in pre-nuptial agreements.
What You Need to Know About Protecting Your Pension if You Get a Divorce
A study conducted by the Government Accountability Office reveals that divorce is very difficult financially, resulting in a 41 percent reduction in household income for women and a 23 percent reduction for men. What this means is that it is crucial to protect as many assets as you can. If you are considering a divorce or are in the midst of one, here are some tips on how to protect your pension.
- Familiarize yourself not only with the laws in your state that pertain to pensions and the division of marital property but also with your own particular pension plan. Find out if you have a choice as to whether to accept a lump sum payout or a monthly annuity, as well as whether your plan has a single-life payout, meaning the benefits stop upon your death, or a joint-life payout which would allow your spouse to continue collecting benefits even if you pre-decease him or her.
- Offer your spouse an alternative asset. Many divorcing couples are able to barter between themselves in order to produce an agreement that provides an equitable division of assets without having to cash out retirement funds or sell homes or vehicles. If there is an asset that is relatively equal in value to your pension, you may be able to work out a compromise.
- If you and your spouse opt to defer payments on your pension plan until you reach retirement and your plan allows for your spouse to continue receiving benefits even after your death, be sure that your spouse continues to be listed as a survivor on your plan.
- If your spouse also has a pension plan and it is close in value to yours, you can simply agree that each of you will keep your own pension and save the costs of lawyers and actuaries.
- Understand if you have debts taken out against your retirement account, the liability for those debts is generally split 50/50.
- Speak to an experienced divorce attorney, who can provide guidance as to the options you have for protecting your pension.
Get Help From An Experienced Fairfax, Virginia Divorce Lawyer
It is always in your best interest to speak with an experienced attorney as early as possible in regard to your pension and divorce. Starting the divorce process without having a full understanding of your rights and the steps involved is an incredibly common mistake. Working together from the very beginning will give us the best opportunity to create a plan and make important decisions prior to starting proceedings.
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Frequently Asked Questions
How are retirement funds split in divorce?
Depending on the specifics of your divorce, retirement funds can be split in different ways. If you are going through an uncontested divorce, you and your spouse will need to determine on your own the best way to split the funds. If the divorce is contested, you may still be able to negotiate a settlement with the help of your attorney. Otherwise, it may fall on the court to make a decision.
Does my spouse get half of my retirement?
Your spouse will not automatically be entitled to half of your retirement funds in the event of a divorce. How much they will be entitled to can either be agreed upon by the parties with the help of their attorneys or it can be decided by the court during your divorce proceedings.
How much of my spouse’s pension can I claim in divorce?
The amount of money you are able to claim during a divorce in regards to your spouse’s pension depends on many factors. In Virginia, the law states that someone cannot receive more than 50% of their spouse’s pension in a divorce.