Can you divide a pension in a divorce?
The answer depends on the facts and the issue before the court. If the issue before the court is the equitable division of property and the funds where earned, in or in part, during the marriage, then the answer is yes the funds earned during the marriage can be divided by the court as marital property.
Pension funds that where earned previous to the marriage are not divisible because these funds are considered separate property and not a marital asset. However, if the issue before the court is spousal support and/or child support the income from a pension earned premarital will be considered in the calculation for determining the amount of child and/or spousal support.
If pension funds are divisible how do we divide them? The wrong way to divide them is to withdraw the funds and pay the money to the spouse. If this is done, the withdrawing spouse will be subjected to a early withdrawal 10% tax penalty plus an income tax liability on the amount withdrawn.
The right way to divide a pension is to have the court enter an assignment or a qualified domestic relations order, otherwise called by its acronym QDRO, to divide the fund.
Retirement plans known as traditional IRAs, Roth IRAs, Simple IRAs can easily be divided by having he court enter an assignment order directing the fund manager to divide the fund.
Retirement plans known as defined contribution plans, such as 401ks, 403bs, retirement savings plans require the court to enter a QDRO directing the manager of the fund to divide the funds.
Retirement plans known as defined benefit plans (sometimes known as a pension) also need to be divided by a QDRO. This kind of plan is very complicated to divide. This kind of plan usually does not have a fund to divide. It has a promise that a monthly payment will be made to the retiree once he/she reach a certain age the amount, of which, is determined by the number of years the employee works for the employer. This kind of plan may also have a number of components that need attention in the division. Some of these plans have early retirement rights, lump sum distribution rights, cost of living raises, survival rights that require expert attention.
If you need legal help dividing up assets in your divorce, call today for a consultation at 269-381-4471.