![]() Tax Implicationsįor the most part, property transfers "incident to divorce" are tax-free. Note: Pensions for federal employees use something called a Court Order Acceptable for Processing (COAP) instead of a QDRO. A QDRO informs the plan administrator how to divide the pension benefit when it comes time.Ī QDRO is something that is handled after a divorce is finalized, so it's important to not let this task go undone (especially if you are the spouse who is receiving the retirement benefits). Usually, the spouse who is awarded part of a pension must obtain a qualified domestic relations order (QDRO) that can be submitted to the pension plan administrator. Pensions are not automatically divided in a divorce. If you and your spouse choose to divide the present value of the pension, you can decide to offset your spouse's share of the pension with other assets such as equity in the marital home. You can use an online service to calculate the present value of the pension or get this information from an accountant or actuary. There are special formulas that can be used to figure out both, though it can get complicated, especially if a portion of the pension is non-marital because it was earned before the marriage. There are two basic ways to treat a pension in a divorce: either both spouses can agree to share the monthly annuity payments (or lump-sum payment) during retirement, or they can divide the present value of the pension at the time of the divorce.Įither way, it's important to know what the pension is worth - whether it's the present-day value or what the benefit will be during retirement. How Are Pensions Usually Calculated During a Divorce? You need to know both of these details before negotiating a property settlement. Your plan might also have a single-life payout, which means the monthly payments would stop at your death, or a joint-life payout, which means the payments would continue until your spouse's death. You will want to understand the details of your pension plan before agreeing to anything with your pension in a divorce, including how your benefits will be distributed, and if your plan includes a survivor's benefit.įor example, you may have the option to receive your pension-defined benefits in a lump-sum payment or monthly. ![]() ![]() If all or part of your pension is marital property, there are a few different factors that you should consider when deciding how to handle the property distribution part of your divorce: The Details of Your Plan It is possible to divide your marital assets in a way that would allow you to keep your entire pension in exchange for your spouse getting other property of the same value. Will You Lose Half Your Pension During a Divorce?īefore you automatically assume that you will lose half of your pension in your divorce, keep in mind that a pension is usually only one piece of the pie when it comes to property settlement. Separate property is not divided during divorce. Any part of the pension that was earned prior to the marriage can be considered non-martial, separate property. Generally speaking, a pension that is earned during the marriage is considered to be joint marital property and is subject to division during divorce, just like any other marital property. How Are Pensions Usually Divided or Split in a Divorce? If you have a pension, you will want to read the below information on how to best protect it during your divorce. State and federal government employee pensions.Today, public sector employers tend to offer pensions while private sector employers tend to offer 401(k)s. Traditional pensions are not as common as they once were. Earnings on these investments then fund income for the employee during retirement. Instead, employers are responsible for making contributions on the employee's behalf. Unlike defined-contribution plans such as 401(k)s, employees do not have a role in contributing to the funds. This is referred to as a defined-benefit plan. Pension plans are unique because they promise to give employees a set amount of retirement benefits for life. If you are going through a divorce and are wondering if there are ways to keep your entire pension during a divorce, the answer is yes, but only if you "buy out" any marital interest your spouse has in the asset. Retirement accounts are often one of the biggest assets in a divorce, and many people going through divorce worry about losing their retirement savings, especially if they are nearing retirement age. What Happens to a Pension in a Divorce?.
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