Pension - Divorce

If you are dealing with a pension in a divorce, read on... Do you realize that a pension is part of your marital assets?

Just like a bank account, your home, your cars, your pension account is a marital asset. 

Why is a pension a marital asset?

Ok, I get it.. YOU earned the pension, YOU went into work every day... but divorce happens and you have to suddenly split the value of that pension with your spouse. To go a step further, maybe your spouse worked but has no pension, worked part-time, or even never worked at all. It sounds odd, but true.

Let's look at another perspective. Assume you are the stay-at-home wife who did the household duties and took care of the kids for many years, then entered the workplace at age 40.. but worked far less than your spouse. If you divorce, you have no pension for your latter years. The divorce split your bank accounts, split the home value, and gave you child support or even alimony, but the pension remained with him. Now this is an equitable split.. makes sense, doesn't it?

That doesn't mean that it's easy, it's totally not and certainly makes it unpleasant for the Human Resources employee who is the in-between the employee and the spouse.. uggg! I remember many difficult divorces and felt bad for both parties.

By the way, it's not always the man's pension that is split for the wife. I've had many women with pensions, clerks and professionals, and their husbands might have been disabled and unable to work, or worked in long term jobs without pensions, etc. Many scenarios, but wanted to share that it's not just men who lose pension benefits.

Why do I want a pension?

A pension can be a defined benefit pension plan (lifetime payments) or a defined contribution pension plan (savings type account).

Under a Defined Benefit plan, the pension, for example, could be split 50-50 (for the period of time that you were married). At the time the employee is eligible to retire, two benefits are paid out (one to the employee who retires and one to the ex-spouse). A Domestic Relations Order is court approved and specifies how the pension should be split (within the pension plans options so that the pension paid out, in the end, is no more than if the employee had never divorced).

Same thing with a Defined Contribution Plan (401k, IRA, Deferred Compensation)... a Domestic Relations Order is sent to the employer/company who will split the monies accordingly. These monies often cannot be used without taxes and penalty being paid, so please see a tax consultant before taking a cash out.

How to keep Your Pension

Sometimes, due to your circumstances, the pension is negotiated, and the ex-spouse walks away with something other than the pension. Some examples: the pension is only a 5 year pension thusfar (so the ex takes their share from savings), or the spouse has their own pension, etc.

Quite often, the employee wants to keep as much of the pension as possible.. mostly ALL of their pension benefit. Grin! If the attorneys can work out another settlement, the ex-spouse might be happy with it. Sometimes a larger payout from the savings account, a larger percentage of the home, whatever... Of course, be reasonable, the spouses attorney will be there to assure their client gets their fair share, but if you can negotiate with other assets, especially the Defined Benefit is more valuable as a lifetime payment to you.

What are your pension rights?

More on Divorce at Retirement here.