Divorce is an unhappy time in anyone’s life, as it marks the end of a likely long-term relationship and marriage. However, it is important to understand the financial implications of divorce as you go through it. Therefore, if you are in the process of filing for divorce, the fate of your pension is probably in the center of your attention. There are various options for the development of this situation. Here’s what you need to know.
A financial advisor can help you create a financial plan tailored to your needs and goals before and after your divorce.
How is a divorce pension calculated?
A pension earned by one spouse is generally considered a joint asset, as are other retirement accounts such as 401(k), 403(b), and IRAs, although the latter are governed by state law. Usually, everything earned before marriage remains personal property, and what is earned during marriage is considered joint property.
However, dividing pensions in a divorce is not always a haphazard situation. First, if you are not actively receiving a pension (and therefore do not know the exact amount and frequency of payment), it can be difficult to determine its exact value.
Also, although a pension is usually considered a joint family asset, this does not mean that it is always divided 50/50. The exact amount varies depending on each state’s law and how much of the pension was earned during the marriage. Remember that if you and your spouse have signed a prenuptial agreement that protects your pension, it will remain yours.
If you have a military or state pension, they are governed by their own set of rules and may not be subject to the same rules when dividing your property in a divorce.
Lawyers Behind Divorce Pensions
If you have a pension, you’ve probably heard of the Employee Retirement Security Act of 1974 (ERISA). This is a set of rules that protect retirees. However, in 1984 the Pension Capital Law was passed, which protects spousal benefits as they are related to pensions.
To access a percentage of your pension, your spouse would have to specifically ask for their share at the time of the divorce, not at the time of your retirement.. This is done through a court order called a Qualified Family Relations Order (QDRO).
If your spouse is entitled to half or part of your pension, it will be withdrawn at the time of the divorce and transferred to their own retirement account, usually an IRA. It is important to note that with QDRO, the spouse is exempt from the tax consequences of receiving their settlement.
State Divorce Pension Laws
The general rule of thumb when it comes to splitting a divorce pension is that the spouse gets half of what was earned during the marriage. However, this depends on the laws of each state governing this matter.
In equitably distributed states, assets (such as your pension) are fairly divided, but this does not necessarily mean 50/50. The vast majority of states are equitable distribution states. But there are also several states with joint property, where all the property of the spouses is simply divided 50/50. There are only nine states with public ownership – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In other states, including Alaska, Florida, Kentucky, Tennessee, and South Dakota, spouses are allowed to participate in a joint property system.
The power of negotiation during a divorce
If you have a pension and are in the middle of a divorce, don’t shell out half blindly. You may have several cards on your side. First, find out if your future ex has a retirement age. If it’s comparable to yours in value, maybe both of you should just level the score. After all, think about the money you save on lawyers alone.
Second, if your spouse does not have a retirement account equal to your pension, consider other joint family assets that you could offer instead. Real estate will be your best bet here. Instead of splitting your pension, try offering your former home or other comparable property.
When you divorce, your spouse is usually entitled to a portion of your pension. However, the amount your spouse receives varies by state, as the laws governing divorce pensions vary.
If you have a pension and are getting a divorce, you can still do something to protect your financial interests. For example, review your plan and its details. The more you know before settling, the better. You can also hire a lawyer with experience in the pension industry or consider a QDRO specialist. And finally, don’t automatically assume that you will lose half of your pension. This is not always the case as most calculations are based on what was earned during the marriage.
Retirement Planning Tips
Whether or not you have to split your divorce pension, knowing how much your current savings will help you into retirement can help you plan ahead. The comprehensive SmartAsset Retirement Calculator can give you a detailed look at how your savings stack up.
A financial advisor can help you put together a financial plan for your retirement needs and goals. long term pension plan. Finding a financial advisor is not difficult. The free SmartAsset tool will match you with up to three vetted financial advisors that serve your area, and you can interview their advisors for free to decide which one is right for you. If you’re ready to find a consultant to help you reach your financial goals, start now.
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Message Is my spouse entitled to my pension in the event of a divorce? first appeared on the SmartAsset blog.