For many spouses, property division in divorce includes dividing pension accounts. Pensions are employer-maintained, tax-deferred retirement accounts that provide fixed payouts during retirement. Many public and some private employees receive pensions as part of their benefit packages. When a couple divorces, these accounts must be handled appropriately to ensure that neither party receives an unfair amount.
Pensions and divorce are complex because financial law is typically filled with terms and provisions that only experts understand. Retaining a family law attorney to assist with dividing retirement in divorce is the best way to ensure that everything is distributed appropriately to prevent financial penalties and ill-will on the part of the other spouse. Consider pensions just one of the many types of property to divide during a divorce and give them the required level of consideration.
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During the employment years, the employee (and possibly, the employer) contributes to the pension account. These contributions are invested and both they and the earnings generated accumulated tax-free until the employee retires. After that time, the employee receives a specified amount of money each month for the remaining lifetime or, in some cases, a lump sum payment.
Though any pension benefits earned by an individual prior to the marriage are considered individual property, the benefits earned by a spouse during a marriage are considered marital property. As such, they must be divided and distributed during divorce. This is true even if the spouse did not make any contributions to the pension account during the marriage.
To determine the amount that each spouse is due, a valuation date is established and account value is calculated as part of the divorce process. How the situation is handled is based on divorce laws within the state. In most states that follow equitable distribution laws, the premarital period is separated from the marital period and a mathematical formula called a coverture fraction is used to calculate the percentage owed to the other spouse.
Vesting in the pension account is another issue that must be considered. Many pension plans entitle the employee to incremental ownership over a period of up to ten years. If the employee is not completely vested in the account at the time of divorce, this is factored in when determining the pension division. These complexities make it clear that hiring a family law attorney is the best approach when pensions are among the assets included in individual or marital property distributed during divorce.
I’m wanting to know if they split a pension plan by monthly payout or the worth of the pension over a set amount of years. if they spit monthly payments if makes my situation more fair. If this is done by value of the pension over time, then it places thousands of dollars per year more to my wife going by monthly pay outs.
It depends what state you live in and where the divorce Judgment was entered. There are 2-types of states when it comes to dividing property during a divorce: equitable division states (the majority of states) and community property states (a handful of states only). If you are in an equitable division state (South Carolina is an equitable division state), property is broken down 2-ways: marital property, and separate property. Separate property would be property acquired or earned BEFORE the marriage. Separate property also includes things like certain gifts and inheritances. There are rules that go along with these separate property items though – they can’t be “commingled” with marital property in such a way that the two forms of property become impossibly mixed.
When it comes to retirement assets, like a pension, the basic formula is this: take the number of years TOTAL working at a company divided by the total number of years working at the company WHILE YOU WERE ALSO MARRIED. That is the percentage that is “marital property.” The ‘Marital’ portion is generally equally (50/50) divided at the earliest payout date.
Here’s an example:
1. You start a job and work there for 10 years.
2. You get married.
3. You get divorced 20 years later.
3. You continue working at that job for 10 more years.
4. Total time working: 40-years.
5. Total time working while also married = 20 years.
6. Marital portion = 20 years (50%).
7. Spouse will get half the marital portion upon retirement (25% of your monthly payments).
One way to avoid this, if possible, is to offer some type of lump sum buyout of the pension, if you want to do that. Maybe take the value of 5-yeas of pension payments to her and offer a lump sum check (if available) to have her walk away form it. It saves you tons of money long-term, and it also gives her a chunk of money right now (that maybe she desperately needs). Win-win situation. There are complex formulas that can be taken into account to value a pension, so an experienced divorce lawyer is pretty much essential here.