Divorce might not only be emotionally draining, but it can also have long-term financial consequences. Splitting your assets from your spouse’s can be especially difficult if your pension plan is at risk. A pension earned by one partner is often regarded as a joint asset, which means it can be divided in divorce. For more information, get professional legal advice today.
If a divorce is on the horizon, there are four measures you may take to protect your pension payments as much as possible.
Review the laws of your state.
Knowing the requirements in your state is the first step in managing your pension while dealing with a divorce. A pension can be divided between spouses upon divorce, but it is not automatic. Before the divorce is finalized, your soon-to-be ex must make a particular request for a share of whatever you have accumulated. Before any monetary benefit from a pension or other retirement accounts, such as a 401(k), may be provided, the spouse must file a qualified domestic relations order (QDRO) paperwork.
In terms of what amount each partner is entitled to, the normal approach is to divide pension payments earned throughout the marriage evenly. Though this means your spouse can collect half of your pension, they are restricted to what was earned during the marriage.
If you had participated in a defined-benefit plan for ten years before getting married, any contributions made on your behalf by you or your employer during that time would not count against the amount a spouse might ask for in a divorce.
Check the details of your pension plan.
When acquainted with the rules regulating pension division in your state, the next step is to investigate how the plan operates. There are two main points to consider here. The first is to confirm how payments are disbursed, and the second is to see if the plan includes a survivor’s benefit.
Understanding how the plan operates is critical because it influences how you distribute assets throughout the divorce. If you have a single-life payout, for example, your spouse is subject to the payment option you selected when you signed up.
If your plan provides survivor benefits, encourage your spouse to keep that benefit rather than requesting a lump-sum distribution. Your ex must consider those benefits in their gross income, but they may be able to claim an estate tax reduction.
For more information, schedule an appointment with an experienced divorce attorney today.