How Are Pensions Divided in Divorce?

Dividing PensionsFor 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.

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About the Author
Andrew has a strong understanding with family law matters including Divorce, Child Custody, Child Support, Visitation, and Father's Rights.

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