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Dividing your pension during divorce

On Behalf of | Dec 27, 2021 | Division Of Pensions

When you and your spouse have decided that you’re going to divorce, you may need to divide your pension. If you have a pension as a part of your retirement plan, you will need to determine the kind of plan it is actually a pension or if it is a contribution retirement plan.

Contribution plans are actually simpler to divide and include plans like 401k’s, 403b’s TSP’s, 457’s and IRA’s. Pensions are defined benefit plans most common among public school teachers, city employees, federal and state employees and other public employees.

The method for dividing a pension

The method used to divide a pension will depend on your preference between two options.  The first option is to share the future payments when they are paid out during retirement. You might refer to this division as a “deferred distribution method.”

The second way is to divide the pension now at its present value. This might be called the “immediate offset method.”

With the second method, the person who has a pension buys out the nonparticipant. They might exchange a large asset valued at the same amount as the other party’s share of the pension, for example, in order to keep the pension solely in their name.

In exchange for a different asset or cash, the nonparticipant then gives up their right to a share of the pension in the future.

What happens if you want to divide the pension in the future?

If you would like to define the future payments during retirement, then you will need to calculate the future monthly benefit of the pension and then use a qualified domestic relations order, or QDRO, to have those assets assigned to the ex-spouse who isn’t the plan holder. The QDRO will give exact instructions to the pension administrator for how the pension should be divided between the pension participant and ex-spouse in the future.

Dividing a pension can be tricky, but it’s possible to do so with or without a QDRO. Finding out the value of the pension is the first step, and then you can determine how you’d like to divide it.