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Who pays taxes on your pension?

by | Aug 31, 2017 | Division Of Pensions

You get a pension, but you’re not going to get all of it. You and your spouse got divorced, and your ex is entitled to a portion of that pension.

While you’ve come to terms with the fact that your ex will be a beneficiary, whether you like it or not, what you’re wondering is who has to pay the taxes. Do you pay them in full and then pay your spouse out of the remaining balance, or does he or she have to cover the portion of the taxes that are connected to his or her gains from the pension plan?

Typically, under a Qualified Domestic Relations Order (QDRO), the tax burden goes to the person who is receiving the money. That means that if you and your ex both get 50 percent of the pension, you’ll both be responsible for your own 50 percent of the taxes.

This is why it’s so important to have the QDRO in place and to make sure that everything is legally set up to support the division of assets.

If you and your ex have a handshake deal in which you agree to simply send a portion of your income over every month, for example, you are technically liable for the entire tax burden. Sure, your ex may agree to help with that cost, but will that happen? Will it happen every year? Do you want to bank on that?

It’s far better to have the legal framework in place so that everyone knows where they stand, what rights they retain, and what obligations they have.

Source: Live About, “What Is a Qualified Domestic Relations Order During Divorce?,” Cathy Meyer, accessed Aug. 31, 2017