Pensions
When a couple divorces, they probably focus first on dividing the property
that's easy to see--the home, furniture, cars, etc. The property they
can't see their
intangible property is also affected by divorce.
For many families, a pension is the largest asset, after the family home.
Even if the pension is earned solely by the efforts of one spouse, the
portion of it that was earned during the marriage is still marital property
subject to division by the court. (For discussion of how a pension can
be considered nonmarital and marital, see the earlier section on "Marital
and Community Property,"). Many courts prefer to give full rights
to a pension to the party who earned it as long as the other party will
have a sufficient amount of income and property from other sources.
If, however, the pension is the primary source of income that a spouse
would have and there are no other significant sources of income, the court
is likely to divide rights to the pension. The court can divide the pension
between the spouses by percentages (i.e., spouse A will receive 60 percent,
spouse B 40 percent) or by a fixed cash amount to one spouse with the
remainder to the other spouse (i.e., spouse A will get $600 per month,
spouse B $400).
Divorced spouses may also be eligible to collect Social Security retirement
benefits based on their ex-spouse's work record. As long as the divorced spouse:
- is sixty-two or older
- is unmarried
- was married to the worker for at least ten years and
-
is not entitled to benefits on own or other account, that exceed one-half
the wage earner's primary benefit amount
he or she is generally eligible to collect benefits. The wage-earning
spouse doesn't have to be retired and actually drawing benefits; he
or she just has to eligible for retirement benefits.
The impact of divorce on Social Security retirement benefits is very different
from its impact on pension benefits. A worker with a pension is eligible
for a certain amount of money in benefits. If a court orders these benefits
split between the parties, the worker's share will go down.
With Social Security retirement benefits, the eligibility of a divorced
spouse has no effect on the amount the worker is entitled to. He or she
will collect that amount whether he has no eligible spouse or ex-spouse
or whether he has four ex-spouses all eligible to collect based on his
work record.
That's one reason establishing eligibility for a divorced spouse is
normally not difficult. It doesn't require a court appearance or even
notification to the worker. It simply requires presenting the appropriate
documentation to the Social Security Administration. Documentation would
normally include proof of
- identity
- each party's age
- Marriage and
- divorce (the divorce must be final; the legal action cannot be a separation
or an annulment)
Generally, original documents are best, but certified copies will be acceptable.
A divorced spouse may also be eligible for benefits on the account of a
deceased wage earner if the wage earner was eligible for benefits. Requirements
are similar to those outlined above, except that the surviving divorced
spouse must be at least sixty (or at least fifty and disabled or be caring
for a child who is also eligible to receive benefits on the deceased wage
earner's account) and the surviving divorced spouse can remarry after
age sixty (age fifty if disabled). The amount of the benefit is approximately
equal to the wage earner's primary benefit amount. As with retirement
benefits, more than one person can collect. Applicants will need the documents
outlined above, along with proof of the wage-earner's death and, if
applicable, of disability.
Retirement Benefits in a Divorce
Accrued or vested retirement benefits are community property. This means
they need to be divided in a divorce. Retirement benefits that fall under
community property include military pensions, veteran's educational
benefits, ERISA funds, IRAs, Keoghs, Employee Stock Option Plans (ESOPS),
401K and 403K plans, etc.
Certain retirement benefits are not classified as community property.
They include:
- Social Security payments
- Compensation for military injuries
- Worker's compensation disability awards
Regardless of the length of the marriage, retirement benefits should be
discussed and settled. For example, the petition, marital settlement agreement
and judgment should all provide either for the spouse's waiver of
retirement benefits or the division of any such benefits. A spouse should
waive retirement benefits only if that spouse's share is worth very little.
There are two options for dividing retirement benefits: (1) the present-day
valuation buy-out, and (2) division into two accounts. In the former,
the spouse without the retirement benefits takes the present-day value
of his or her interest in the retirement benefit and trades it for something
else of equal value, such as cash or other assets. Stock options and pension
plans where a person must work for a certain number of years may be worth
more than you think. It may be advisable to hire a professional pension
actuary or appraiser before making a decision. Contact
Pension Evaluators & QDROs of Troyan, Inc Associates Group at 1-800-221-0706 for further assistance.
When dividing a retirement account, you want to make sure you don't
lose any tax advantages. A Qualified Domestic Relations Order (QDRO) will
be required to transfer a share of retirement funds from the spouse participating
in the retirement plan to the other spouse. Please contact the retirement
plan administrator or a qualified attorney for more information regarding QDROs.