Having gone through a divorce back in 1989, one of the hard things I learned about life is that divorces cost a gal more than a broken heart. In a marriage where the woman has a pension plan and the husband doesn’t, we could lose up to half of our retirement benefits as well. Retirement benefits accumulated during a marriage are regarded as marital property and like other joint assets are thrown into the communal pool to be divided up between the parties.
How and if these retirement benefits are divided up in a divorce depends on two factors; if the retirement fund is community property or separate, and if you live in a community property state or equitable division state. Since many of us have contributed to our retirement plan while married, our pensions are usually treated as community (or marital) property. If however your retirement plan consists of worker’s comp, disability, social security or the railroad retirement fund, these are considered separate property and can’t be touched in a divorce.
State law ultimately decides how marital property will be divided. Since I lived in a community property state at the time of my divorce, marital assets (including the IRA) were split in half for a 50-50 division. In equitable division states, pensions are divvied according to what’s fair and equitable. In these states, judges look at the whole picture (including non-marital assets) before deciding how the split will be made. Just so you’ll know, the nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The remaining 41 are Equitable Division sets.
Additional Information you should know.
1. In a divorce, everything – including your pension – has to be valued. And, when setting a value on your pension, keep in mind that retirement funds aren’t the same as an equal amount of cash. Penalties, interest, and your tax bracket will take a big bite out of your retirement which lowers the value. Your accountant may be able to give you a ballpark figure of worth, but in a hostile situation where the ex believes numbers are being low-balled, ask for a special appraisal known as “actuarial valuation.”
2. To keep my IRA intact, I agreed to accept more of the community debt. Other ways to avoid a pension division is through a buy-out or letting your husband keep something of equal value. If there’s no way around dividing up your pension, ask that the division is done by percentage and not by actual dollar amount. This protects you in case the market value drops during the divorce.
3. One the dust has settled on the divorce, one last bit of paperwork that needs to be filled out is a Qualified Domestic Relations Order (QDRO) in case your retirement plan did come under the axe. A QDRO is the court order which instructs the administer of your retirement plan how the benefits are to be paid to your ex-husband. Don’t try to fill out this form yourself, have your divorce attorney do it instead.
The bottom line for a working woman is that unless our husbands also have a retirement plan, our pensions are up for grabs during a divorce. A competent divorce attorney, a good accountant, and some creative thinking will minimize the damage.
Clivir.com, “What happens to retirement and 401k funds in a divorce”.
Dianedeforest.com, “Distributing Retirement Benefits Upon Divorce;USNews.com
USNews.com, “How divorce affects retirement benefits”.