How to Split the Pension in a Divorce

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States divide marital property and debt under the laws of either community property or equitable distribution. While there are many differences, both types of systems are similar in their disregard for title to marital property -- the question of whose name appears on an asset or who actually owns it. In both community property and equitable distribution states, marital assets are considered property of the marriage, not of the individual parties. This includes pension plans, which appear in only one party's name. But although pension plans can constitute marital property, specific steps are required to secure the benefit of the nonparticipant spouse.

  • Decide whether or not dividing the pension is in your best interests or even necessary. Dividing most pension plans requires the entry of a Qualified Domestic Relations Order (QDRO), which can easily cost more than $1,000 to have prepared. If your spouse only worked for the employer in question for a short period of time during the marriage, it may be more appropriate to accept other assets in lieu of a pension interest.

  • Decide on whether to divide the pension in question via a buyout or a QDRO. In a buyout, an actuarial expert assigns a present value to the future benefits to be received under the pension, and the nonparticipating spouse is compensated for her share in the form of other assets or reduced responsibility for marital debt. As present value calculations can produce widely varying values and can be affected by contingencies such as early retirement or death, many lawyers and parties prefer a QDRO. A QDRO splits the marital portion of the pension between the two parties and pays the nonparticipant's benefit directly.

  • Decide upon an appropriate date to divide the pension. This will usually be the date upon which the marital estate stopped accruing in your state. In some jurisdictions, it's date of separation, while other jurisdictions use date of divorce or some other date. Get this issue settled up front to avoid arguments later on. Also resolve the issue of whether the plan participant will continue to have the right to change surviving spouse designations or make other important changes to the plan that could affect the nonparticipant's benefit.

  • Agree upon what to do with benefits paid before the QDRO is entered in the event the participant is already receiving payments. A plan will not give the nonparticipant any "back pay." If the participant will be receiving benefits that should be shared with the other party, the parties should enter into an agreement requiring the participant to pay the nonparticipant's share directly until the QDRO is implemented.

  • Retain an attorney to prepare and handle the QDRO for you. While people can represent themselves and many tasks are relatively simple, QDRO preparation is not one of them. This area is ripe with opportunities to make expensive mistakes than will quickly wipe out any savings you generate by not using a lawyer.

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