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Guide to Dividing Pensions in Divorce

Divorce is never easy, but when it comes to dividing pension benefits, things can get really complicated. If you're getting divorced and have a pension, here's what you need to know about how it will be divided.

What happens to my pension benefits in divorce?

When a couple divorces, their retirement benefits are on the table for splitting. There are a few different ways that retirement benefits can be divided in a divorce.

Equal split

The spouses can agree to split the pension equally. This can be done with or without a Qualified Domestic Relations Order (QDRO). If there is no QDRO, the IRS will consider the split to be taxable income to the receiving spouse.

Equalization payment

One spouse can give an equalization payment to the other to offset the pension. This payment is not taxable.

Benefit forfeiture

The spouses can agree to keep the pension plan as it is. If this happens, the non-vested spouse will usually have to forfeit their right to any future benefit payments from the pension.

If there is no agreement between the spouses, the court will decide how to divide the pension. This can be a difficult task because there are many factors to consider, such as each spouse's age and health, how long the ex-spouses were married, and whether one spouse stayed home to take care of the children while the other worked.

What is a pension?

A pension is a regular payment a person receives from an employer or the government after they retire. Money from a pension fund can be used to provide a regular income for the person receiving the pension as well as their spouse and dependents. The money can also be used to pay for healthcare costs and other expenses.

What is a QDRO?

A QDRO, or qualified domestic relations order, is a document that splits marital property between divorcing spouses. It specifically outlines which assets belong to which spouse and how they will be divided. A QDRO is often necessary when one spouse has a pension or retirement account that is difficult to divide equally. The document must be filed with the court and approved by a judge in order to be legally binding.

What is the difference between a QDRO and a DRO?

A QDRO is a Qualified Domestic Relations Order, which is a legal document that specifies how a divorce settlement will be paid out. A DRO is a Domestic Relations Order, which is nearly identical to a QDRO, except that it’s not qualified by the plan administrator.

Suggested reading: My QDRO Has Been Filed. Now What?

What is a defined benefit plan?

A defined benefit plan is a retirement savings plan that provides employees with a fixed monthly payment after they retire. The monthly payment amount is based on the employee's salary and years of service. Defined benefit plans are becoming less common as employers transition to defined contribution plans, which allow employees to contribute to their own retirement savings.

What is a defined contribution plan?

A defined contribution plan is a retirement savings plan where employees contribute a fixed percentage of their income to the plan, and the employer contributes a fixed percentage. The contributions are invested, typically in mutual funds, and the account balance grows over time. When the employee retires, they can withdraw the funds and use them to live on in retirement.

What is an equalization payment?

An equalization payment is a sum of money paid from one spouse to the other to ensure that both spouses have an equal share of marital assets. This payment is often made in cases where one spouse’s pension benefits are on the table for splitting. The payment helps make sure the spouse who does not have the pension still receives an equitable share of the marital assets.

FAQ about dividing pensions in divorce

Does the length of my marriage affect how my pension will be divided in divorce?

Possibly. You're only entitled to half of the pension value during your marriage. So, if your spouse's pension has a present value of $100,000 but only $50,000 of that value occurred during your marriage, you're only entitled to half of the $50,000, or $25,000.

Do state laws affect how my pension is divided in divorce?

Yes. In some states, the pension is divided equally between ex-spouses. In other states, the pension may be divided in a way that is fair to both parties, depending on their specific situation.

Can my spouse take my pension in divorce?

No, but pensions are considered marital property and will be divided between spouses in divorce. So, you may have to make an equalization payment or provide other compensation to your spouse so they get the value of half of your pension.

Can my spouse take my 401(k) in divorce?

Your spouse is entitled to half of the value contributed during the marriage but will most likely be unable to take the entirety of your 401k.

Who can help me protect my pension post-divorce?

After your divorce decree has been finalized, you shouldn't have to worry about your pension other than to make sure it continues to grow in value so you can retire comfortably.

Are you feeling overwhelmed by the prospect of divvying up your retirement plan assets? Hello Divorce experts can help you reach a settlement agreement that’s fair and equitable to you and your former spouse. Check our flat-rate service page here to read about the attorneys, mediators, and financial planners on our team. Our goal is to ease your burden as you transition from marriage to single life.