When a couple divorces, there are many financial considerations that will factor into the divorce proceedings. For many couples, questions about the division of major tangible assets like homes and cars may come to mind first, but the fate of one or both spouses’ pensions is also a major concern in divorce cases.
Learn more about how federal pensions are divided in divorce cases.
Pension Overview
A federal pension that is earned by one spouse in a marriage is typically considered a joint asset, much like other retirement accounts, such as IRAs and 401(k) plans. With other types of income, whatever is earned before the marriage is usually considered individual property and what is earned during the marriage is considered a joint asset.
However, the situation is not as straightforward when it comes to pensions. Despite being a joint marital asset from a technical standpoint, pensions are not always split 50/50. The amount of the pension that was earned during the marriage is one of the biggest considerations in how it is divided.
Determining the precise value of a pension can prove challenging in divorce cases, especially if the spouse is not yet receiving the pension and therefore does not have specific details of the payment amount and frequency.
State Variations
Each state has its own laws governing the division of federal pensions that will enter into the calculation, while military and government pensions are divided according to their own set of rules. Therefore, divorcing spouses need to be aware of the applicable rules in their individual case.
Most states use an equitable distribution model, which means that pensions and other assets are divided fairly, although not necessarily using a 50/50 split. However, in community property states such as California, Texas, Washington, Arizona, Nevada, New Mexico, Louisiana, Wisconsin and Idaho, all marital property has a simple 50/50 division.
Legal Considerations
The Employee Retirement Security Act of 1974, or ERISA, is designed to protect pension holders, while the Retirement Equity Act of 1984 governs the spousal benefits of pensions.
To access a percentage of one spouse’s pension, the other spouse must ask for their share during the divorce rather than at the time of the spouse’s retirement using a court order known as a Qualified Domestic Relations Order, or QDRO.
If this spouse is indeed entitled to a portion of the other spouses pension, the funds are typically withdrawn as part of the divorce settlement and placed into their own retirement account. This is typically an IRA. Spouses who obtain pension funds from their former spouse using a QDRO are exempt from the tax ramifications associated with receiving a pension settlement.
The pension’s payment distribution method is another important consideration. For example, if one spouse has a plan that uses a single-life payout and they have chosen the annuity option, the payments will stop upon their death; if they have a joint-life payout, the payments will continue throughout the life of the surviving spouse. The way that the spouse’s plan works will also affect the division of the assets in the divorce.
Alternative Options
Individuals who would prefer not to give half of their federal pension to their ex-spouse as part of a divorce may be able to reach another type of settlement. For example, if they find that the spouse they are divorcing has a retirement account of their own that is comparable in value, the parties may find that simply having each spouse keep their own pension is the easiest path forward.
However, in cases where one spouse does not possess their own retirement account or they have one that is not equal to the value of the other spouse’s pension, it may be possible to offer them other joint marital assets in order to keep the proceedings equitable. For example, the spouse who wishes to keep their full pension may offer the other spouse the marital home or another type of real estate that is comparable in value to the amount of the pension.
In some cases, a spouse who wishes to protect their pension might consider purchasing a life insurance policy equal to the pension’s benefits, naming their former spouse as the beneficiary.
Schedule A Consultation With The Family Law Attorneys At Milstein Siegel
It is always advisable for those considering a divorce to discuss their options with an experienced family law attorney as early in the process as possible to ensure their retirement and other benefits are protected. If there is a substantial pension at stake, it is wise for divorcing parties to hire an attorney with expertise in dividing retirement benefits.
The divorce attorneys at Milstein Siegel possess considerable experience in handling cases that involve the fair division of federal pensions and retirement benefits. To schedule a consultation or obtain more information, reach out to the legal team at Milstein Siegel today.
