Retirement Benefits

Retirement Benefits Fact Sheet

The retirement plans or your pension plan may be very valuable. In many cases, they may even be the most valuable marital asset, worth more than the marital home or other investments.   Many employers offer retirement plans as additional compensation that is earned, however not received until after the age of retirement.  For that reason, a fair property settlement at the time of the divorce will need to be forward looking. This requires a fair and equitable distribution of retirement assets earned during the marriage, however, distributed at the age of retirement. 

Typically plans fall into four categories

  1. Defined Contribution Plans are the most popular type of retirement income. They include IRAs, 401k, 403b and profit sharing plans. Each participant maintains an account where the employer and the employee contribute to this, the plan invests the contributions made and the account is adjusted for investment loss or gains.  Upon employment termination or retirement, the employee has the option to withdraw the entire account balance in one lump sum or make periodic withdrawals.  The Defined Contribution Plans are simple to value as the value is simply the account balance.  During the divorce process, the parties will often identify the value of the account accumulated during the marriage or the marital portion of the plan.
  1. Defined Benefit Plans or Pension Plans offer the employee a fixed or defined monthly retirement income at the age of retirement.  Retirement benefits are determined by a formula which usually takes into account the length of employment, final salary and the age at the time of retirement. All such plans are different and the value of such plans are based on the formula and not on the account balance.  The value of a defined benefit plan is not the amount of the employee’s contributions.  A pension evaluation or the use of a retirement benefit expert is advisable in order to determine the correct value of a defined benefit plan.  When dividing the marital portion of a Pension Plan the value of the pension may be offset against the value of other marital assets.   If this is not possible, the parties may decide to split the Pension Plan through deferred distribution, in which the pension benefits are divided when received at retirement.  This is done by means of a Qualified Domestic Relations Order or QDRO.
  1. Stock Ownership Plans (ESOP) are similar to a defined contribution plans except the contributions are shares of company stock. A stock ownership plan is not the same as stock option plan.   The Stock Ownership Plans may be valued and divided by divorcing spouses very similar to a Pension Plan.  The price of publicly traded stocks may be found in the financial pages and closely held corporations are required to value their stock on an annual basis. When dividing the marital portion of ESOP the parties may offset against the value of other marital assets.   If this is not possible, the parties may decide to split the ESOP by means of a Qualified Domestic Relations Order or QDRO.
  1. Unique Plans cover all other retirement plans not mentioned above.  The most common ones are Employee stock options plans and deferred compensation plans. The use of a retirement benefit expert is advisable in order to determine the correct value of such Unique Plans.

Here are some options you may consider during divorce negotiations:

Value. A pension fund that is anything more than a simple tax-deferred savings and investment account (like a 401 k) can be worth much more than is shown on the account summary statements. Before division, pension funds should be valued by a professional actuary to be sure you are working with fairly correct values. Once you have the correct value, you can consider your options.

Trade. You can trade your interest in your spouse’s pension plan for another asset of equal value. This may allow you to keep the children in the family house or perhaps leave a marriage free of debts.

Divide. You can formally divide the pension fund at the time of the divorce, so that both spouses receive their share once the employee spouse reaches the retirement age. This could make a welcome addition to Social Security benefits for the non-employee spouse. A few hundred dollars per month may make all the difference in your standard of living in your golden years.  This division is done via a Qualified Domestic Relations Order and is performed by a Retirement Expert.

Waiver. You can give up your interest in your spouse’s retirement plan. Do not do this unless you have had the plan valued by a profession actuary. People are often surprised at the value of their retirement benefits.  Hence, obtain a valuation of all retirement benefits.

Gather information. Before you decided what to do, get copies of the most recent pension fund statements, write down your date of marriage and date of separation, both spouse’s birthdates, and when the employee spouse began to be covered by the pension plan (usually, the date of joining the company). Then obtain legal and professional advice from a divorce mediator, retirement expert or your attorney.




by Charma Pipersky
Nolo Press Divorce Helpline Attorney

  1. In the divorce, what if we just don't mention our retirement plans?

    Big mistake! Depending on your state laws, the martial interests in the retirement plan could be considered an “omitted asset”. At any time in the future, your marital agreement and your judgment could be set aside and an action could be brought to divide the asset. If your don’t want an uncertain future and the threat of litigation for ever after, be sure to list the plan as an asset and deal with it correctly in your divorce action. As if that’s not enough, it is also possible that when you retire, your plan administrators could refuse to distribute pension assets until your ex-spouse signs off on the distribution of assets.

  1. I have a pension plan and my spouse has Social Security; so why do I have to give my spouse part of my retirement?

    Each state has its own rules. In many states, the non-employee spouse is regarded as a full partner, meaning that he or she already owns an interest in that part of the pension plan that was accumulated during the marriage. Social Security is a federal program administered under its own rules, not subject to state laws.


  1. Does the retirement plan have to be valued? I have a stamen showing the value of the retirement plan; isn’t that good enough? Why should I pay to have it valued?

    What you really need to know is the value of the marital property interest in each fund-the value that was accumulated during the marriage. This is the amount that has to be divided as part of your settlement agreement. If your plan is like a tax-deferred savings plan (like an IRA, SEP, or 401(k)) then the statement showing the balance accumulated in the plan is probably accurate, but it will not show the marital interest. You can figure out this account with some careful calculation. For plans where you have to wait until a certain age or number of years of employment, then the correct value is probably not the same as the figure on your statement. It is then often worth much more, but it takes an expert to say how much. An expert is also needed to determine the correct value of the marital property interest in this type of plan.
  1. Would it be better to divide the pension plan or trade for another asset worth half the marital interest?

    The answer to this question depends on your situation:

    ·       How soon each spouse will be ready to retire;
    ·       Other income and assets available to each spouse for retirement;
    ·       How the taxes of each spouse will be affected;

    Before deciding, you should get advice from a family law attorney, qualified financial advisor, or a forensic accountant.
  1. I want to keep my full retirement. How can I do this?

    Trade the non-employee spouse for something of equal value to the spouse’s share of the marital interest in the retirement fund. If this can be negotiated, then the fund doesn’t have to be divided at all, but can be awarded entirely to the employee spouse.
  1. Do I need to join the pension plan in my divorce? What if I don’t?

    You need to join the plan if you might decide to divide up the marital property interest rather than trading the non-employee spouse something of equal value. If you don’t formally join the plan to your action, you can’t count on the plan knowing the terms of your divorce agreement or judgment and there’s nothing to prevent them from distributing assets contrary to your intentions. To protect the non-employee spouse and to avoid the possibility of future confusion and litigation, you should always join your pension plan as a party to your divorce unless you know for sure that the employee spouse will keep it all.

  1. What is QDRO? Do I really need one? What can go wrong if I don’t get one?

    QDRO means Qualified Relations Order, which is what you call the order made by the court to a pension plan (see 3, above) telling it to follow the terms of your divorce Judgment. It is very important to have a QDRO whenever you divide an interest in any pension plan, 401k or annuity. If you don’t get a QDRO, there’s no way to be sure the plan will follow the terms of your Judgment. Two different plans require two joiners and two QDROs. One plan with multiple parts may require more than one QDRO.

  1. Is a QDRO something I can do myself?

    No. A QDRO is very technical and not easy to draw up. It also has to be negotiated with and approved by the plan administrators. If a retirement fund is divided incorrectly, the parties could get hit with a big (unnecessary) tax bill. Plans are generally not interested in helping the non-employee spouse and can be difficult for any layperson to deal with. We advise you not to do your own QDRO.


  1. Is there some way to avoid having a QDRO?

    Yes. Trade the non-employee spouse something of equal value to that spouse’s half of the marital interest. If this can be negotiated, then the fund doesn’t have to be divided at all, but can be awarded entirely to the employee-spouse.  However, whether or not this is wise or fair in your particular situation is a subject for expert advice that takes into account all the facts in your case.
  1. Will I be able to get my share of the retirement plan now or do I have to wait until the employee-spouse retires?

    This depends on the plan and its rules. In most plans, the non-employee spouse can have ownership of his or her share immediately. But watch out! Anyone   below retirement age will pay income taxes and also pay penalties on withdrawn funds unless the funds are very carefully and correctly rolled into an IRA account via a QDRO.

Retirement Benefits Fact Sheet

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