25 Dec Am I due part of my wife’s pension after divorce?
Q. I’m negotiating my divorce. My wife will have a pension and we both have 401(k)s. The 401(k)s are about the same value. Am I due part of her pension and if yes, how do I do that?
— Single soon
A. In a divorce, all retirement assets accumulated during the marriage can be subject to equitable distribution.
If your wife’s pension was accumulated during the marriage, then it would be included in the joint marital assets, said Amber Leach, a certified divorce financial analyst with AXA Advisors/R.I.C.H. Planning Group in Morristown.
She said all joint marital assets are part of the marital pot that gets divided between you and your wife.
To divide a pension, you must first determine the present value of the marital portion of her pension, Leach said.
“Finding the present value of her pension or defined benefit plan is not as easy as finding the present value of your 401(k)s or defined contribution plans,” she said.
A 401(k)’s present value can be found on the most recent statement, but a defined benefit plan or pension’s present value is not as straightforward as looking at the statement.
A pension plan statement does not usually provide a present value of the pension but rather provides an estimate of what your future monthly income payment will be from the pension, Leach said.
“Once you know the future monthly income payment you can then find the present value of that future stream of income,” she said. “A financial professional or a pension appraisal expert can help you determine the present value of the pension.”
Leach notes one caveat: If your wife has been working and contributing to the pension longer than you have been married, then there will be a premarital portion to her pension. You will not be entitled to the premarital portion. Only the marital portion will be included in the joint assets available for equitable distribution, she said.
Leach said once you know the value of the pension it can then be divided in two ways.
One way is to offset the present value of the pension with other assets in equitable distribution.
“A pension can not be forced to pay out any benefits that is not in accordance with the retirement plan’s terms,” she said. “A pension is designed to pay you a future stream of income not write you a check today. A trade-off option could be to receive a higher share of her 401(k) and let her keep the pension.”
The other way to divide a pension is to determine what percentage or amount of your wife’s future monthly income payment will be paid to you, Leach said.
Again, these payments will happen when the plan starts to pay out in the future.
“Some people do not want to wait for future payments and would rather offset with assets they can have today,” she said.
Once you have decided how you want to divide the pension you will then need a Qualified Domestic Relations Order, or QDRO. This is a court order created in accordance with the terms of the pension plan and directs how the payments will be distributed in the future, she said.
“A QDRO is a strict legal document that must be filled out in accordance with the plan’s terms otherwise it could be rejected,” she said. “I would advise you to use a company that specializes in writing QDROs to make sure you have no delays.”
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This story was originally published on Dec. 25, 2019.
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