Can Marriage Pensions Be Reversed?
Pensions allow employees to contribute funds to benefits plans that will offer them fixed or variable payments when they retire. If you are married, your employer may reverse pension funds acquired during marriage. Married couples may have to reverse the terms of a pension plan if they initiate divorce proceedings and split pension plans in which they share common ownership.
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Considerations
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An employer can terminate your pension plan through a pension reversion if your employer has overfunded pension plans, regardless of your marital status. The company will invest plan assets in a fixed annuity plan that will offer you the same benefits as your original plan. These plans don't provide insurance protection, which can lead to a loss of retirement funds if the annuity plan issuer defaults. Your employer can also reverse the terms of pension plans under limited circumstances if it experiences serious financial distress.
Types
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A defined-contribution pension plan allows you to make weekly or monthly contributions to a retirement plan that will offer a variable benefit when you retire. The benefit amount depends on how you invest the funds. However, a defined-benefit plan requires a certain contribution on a weekly or monthly basis that will offer you a guaranteed return upon retirement. Because you can withdraw funds from a defined-contribution plan, these plans are usually reversible if an adverse event happens between you and your spouse, such as a pending divorce.
Divorce
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States don't require a reversal for a pension to which you made contributions before your marriage, since these contributions are considered your assets. Contributions made during marriage are considered shared property in most states. If you or your spouse initiates a divorce, a state court may initiate a pension reversion. This will require your pension manager to liquidate any pension plans or contributions made during your marriage.
Time Frame
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If you make contributions to a pension plan after marriage, state law may consider part of these funds to be marital property. Community property states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin require a 50-50 division of pension plan benefits acquired after marriage. Other states require a splitting of pension funds depending on the length of the marriage and the discretion of a judge.
Domestic Orders
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Because you can't liquidate most pension plans early, you or your spouse might not be able to reverse a pension during divorce proceedings. A judge will instead issue a qualified domestic relations order, which will require the pension plan manager to list your spouse as co-owner of pension benefits. Upon retirement, pension cash out or disability, a QDRO will require you to transfer part of pension payments to your former spouse.
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