PENSIONS & DIVORCE
As a general rule, pensions are marital property and will be distributed after a divorce as part of the property distribution. You have a right to the share of your spouse’s pension even if you have been divorced décades before your spouse retires. Like real estate, stocks, and cash, pensions will be divided up between the two people after a divorce. Different pension plans have different rules; there are different types of plans. There are different types of pensions but they fall under three basic umbrellas: defined contribution plans, defined benefit plans and hybrid plans. The different plans have different rules and if you don’t follow the rules, you could lose your right to a distribution from the plan. It is important for parties to know what type of plan they have and what the rules are for the plan. For example, does the pension rules allow a “survivor benefit?”
The right to a share of the pension from a former spouse is automatic, but not really. Sure, under ERISA (Employee Retirement Security Act) the federal government has bestowed this right to every spouse of a pensioner. However, as a general rule, if you don’t ask for a share at the time of divorce, if it is not a part of your divorce decree, you could have a problem. It’s not that easy to go back after the fact and modify a divorce decree to include a right to the pension. Whether you get a share will really depend on what is in your divorce decree; when the rights of the contributing spouse vests; and the number of years of service, as well number of years of your marriage and other factors.
Some plans, such as military plans, have special rules. For example, after ten years of service is when most military spouses are entitled to a share of a military plan.
With regard to survivor benefits, if your spouse pre-deceases you, you are entitled to survivor benefits under most circumstances but you have to request it and it has to be spelled out in your QDRO.
The administrator of the plan can and often does reject QDROs if they are non-compliant with the rules of the pension plan. Every QDRO must have the following information at a minimum:
1. Name and address (and social security number) of the participant
2. Name and address of the alternate payee (usually the spouse)
3. the amount to be paid (expressed either as a specific dollar amount or a percentage of the participant’s benefits)
4. The number of payments or the payment period.
5. The plan name.
There are other information that needs to be provided but it is specific to each plan.
Pensions and Prenups
Now, one caveat, you can definitely waive your right to a pension, but if you did in prenuptial agreement, that is not enforceable. That’s the good news bad news depending on which side of this equation you are not. PENSIONS CANNOT BE WAIVED IN PRENUPS AS A GENERAL RULE. So if your prenup says you waived, after marriage you almost have to do a postnup to make sure that it stays waived.
Doing a trade off with pension and another asset
Before you trade off the pension for another asset, you have to factor the note, inflation, taxes, wear and tear to really get the value of what it will be at retirement. The house may actually fall in value (yes, real estate usually appréciâtes but be aware sometimes this is not the case). Whereas, the pension could continue to grow and be worth millions. (Some pensions like for athletes and other high earning individuals can really be worth a lot of millions.) Could the pension fall in value? Probably. But these things are usually invested in very safe securities so this is unlikely. Can your spouse borrow the pension away till nothing is left at retirement? Usually no. Not with a QDRO. But you should be aware that many employers are no longer offering pensions and are even freezing plans that already exist. Read this article in the Wall Street Journal, for example.
But the point is to think carefully about trading off the pension for other assets.
What should you do in order to secure your rights to a pension
The first thing you need to do is have your attorney contact the plan administrator, in writing, to get the plan rules and guidelines. Then your attorney or a QDRO specialist needs to draft a “qualified domestic relations order,” submit it to the plan for approval and submit it to the judge for signature.
This is a very complicated area of domestic relations law and so you should definitely also consult a divorce financial analyst and a pension specialist in addition to your attorney so that you know exactly what your rights are and how to deal with it, and what to look for.