How will my pension be paid out after divorce?

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Q. I was divorced approximately 12 years ago. At that time my ex-wife received 50% of what my pension was valued at. It was approximately $140,000 so she will receive about $70,000 after I retire. I’m getting close to retirement so how will the benefit be paid to her? My monthly pension will be approximately $5,700.
— Retired soon

A. Typically, as part of finalizing a divorce, all assets and liabilities amassed during a marriage will be split between the husband and wife by way of equitable distribution.

While “equitable distribution” is not the same as “equal distribution,” in reality, absent exceptional or unusual circumstances, each party will generally receive 50% of the assets acquired during the marriage, said Kenneth White, a certified matrimonial attorney with Shane and White in Edison.

He said pension benefits amassed during the marriage are an example of an asset subject to equitable distribution.

To assure equitable distribution of pension benefits will be paid, a Qualified Domestic Relations Order (QDRO) will be filed with the court and served upon the plan administrator at or about the time your final judgment of divorce was filed, White said.

“The QDRO directs the plan administrator how to distribute the pension benefits between you ex-wife and yourself at the time the plan benefits go into pay status,” White said.

He said it’s very unlikely that the then present day value of the pension that existed at the time of your divorce proceeding will have any relevance to what your ex-wife is to receive.

That’s because pension benefits, which in the future will payout monthly benefits, as opposed to 401(k) benefits that are an actual immediate lump sum benefit, are distributed differently.

White offered this example: If 401(k) benefits are subject to equitable distribution and your ex-spouse was to receive 50% of the balance that existed at the time your divorce was filed, in your case $140,000, the QDRO will direct that a specific lump sum — $70,000 — be immediately released. It would typically go into an IRA established in your ex-wife’s independent name, plus or minus any passive gains or losses that are attributable to that $70,000 from the date the divorce was filed until the actual distribution is made.

Unlike 401(k) benefits that can be immediately distributed, unless a pension is in pay status at the time the final judgment of divorce is entered, the actual future monthly payment to be received as the beneficiary of a pension is unknown because it’s subject to adjustments based on years of service and generally on annual income earned.

“Therefore, when a QDRO is drafted addressing distribution of pension benefits that existed at the time of the marriage, the same sets forth the specific way the pension benefits are to be distributed when the same go into pay status,” he said.

When calculating how much of your future pension benefits are to be distributed to your ex-wife, a calculation is performed based on the number of years you were married to your wife as well as the number of years you were earning credit in the pension plan during the marriage, White said.

For example, if you had 25 years of employment earning credit into the pension and were married during 10 of those years, the marital portion of the pension benefits that would be subject to equitable distribution would be approximately 40% (25 divided by 10).

As your ex-wife would be entitled to approximately 50% of the assets amassed during the marriage, she would likely receive one-half of the pension benefits subject to equitable distribution, or 20%, he said.

“When this information is accounted for in a QDRO and the QDRO is served upon the plan administrator, the plan administrator is responsible to see that a portion of your pension is set aside for your ex-wife, effectively creating two separate accounts — one for you and one for your ex-wife,” he said. “When the benefits go into pay status, your ex-wife will receive 20% of the benefits directly from the plan administrator each month and you would receive the balance.”

Email your questions to moc.p1582549797leHye1582549797noMJN1582549797@ksA1582549797.

This story was originally published on Feb. 11, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.

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