Retirement Pension & Divorce

Pensions can be considered marital property in a divorce case.

One of the most emotionally charged issues in property division pursuant to a divorce is the disposition of a party's pension plan. After twenty or thirty years of working for the same employer, having to share a pension with an ex-spouse can be difficult. Understanding how family law courts treat pensions can make the process of property division pursuant to divorce easier to handle.

Equitable Distribution and Community Property in General

All states divide marital property and debt under laws of either community property or equitable distribution (ED). Community property courts divide an estate equally, whereas ED courts seek to divide it equitably, or fairly. "Equal" and "fair" don't always mean the same thing, though, so ED laws contain a list of "distributional factors" that justify an unequal division in certain cases. Under both types of systems, only marital property is divided, while separate property must be left alone. In ED states, however, the possession of a substantial separate estate can be a distributional factor. Pensions can be either separate or marital property; sometimes, they're both.

Marital and Separate Property

Each state's property division system contains definitions of marital and separate property. While variations among jurisdictions exist, marital property generally consists of property acquired or earned by either party between date of marriage and either date of separation, date of divorce, date of legal separation or date of filing of a petition for divorce or legal separation. Everything else is considered separate, along with property acquired during marriage by gift or inheritance. A pension plan can consist of both marital and separate components, as the participant may have worked for the employer before marriage or after the marital estate stopped accruing. In such an instance, the court will only divide the marital portion.

Present Value of a Pension

Pensions can be divided either by distributing the pension intact to the participant and compensating the non-participant for her fair share of the marital portion in the form of other assets or by entering a Qualified Domestic Relations Order (QDRO) against the plan. Distributing the pension intact requires performing a present value calculation, an extremely difficult task that should only be handled by actuarial experts. Present value calculations involve considering the value right now of all the benefits a participant will receive over time, which implicates life expectancy, changing interest rates and tax rates. Present value is largely hypothetical, as it rests on assumptions subject to change in the future.

Qualified Domestic Relations Orders

Although difficult in their own right, QDROs are the pension division vehicles of choice for many courts and attorneys. A QDRO determines the marital portion of a pension and splits that portion between the parties. The non-participant's portion is paid separately from the rest, so the participant isn't taxed on money he doesn't receive. The non-participant cannot draw benefits until the participant actually retires. If he has already retired, she may have a claim against him for her share of the benefits he drew before the implementation of the QDRO.

References

• QDRODesk: A Buyout Vs. A QDRO
• LegalZoom: Comparing Equitable Distribution and Community Property For A Divorce
• Divorcesource: Pensions and Divorce