How Are Pension Benefits Handled During a High Net Worth Divorce?

 Posted on January 28, 2021 in QDROs, Pensions and 401(k)s

A high asset divorce will involve a variety of complicated financial issues, and complex property litigation may be needed to determine how assets and debts will be divided between the parties. While spouses will often focus on issues related to physical property, real estate, investments, valuables, and financial accounts, they will also want to address their retirement benefits. In addition to dividing the balances of retirement accounts such as 401(k)s or IRAs, spouses will also want to understand their rights regarding pension benefits earned by either spouse during their marriage.

Dividing Pension Benefits Between Divorcing Spouses

Pensions are different from other types of retirement assets since their actual value will usually not be known at the time of a couple’s divorce. Pensions are known as “defined benefit plans,” and the benefits that a person will receive are based on factors such as the number of years a person worked in a position that earned pension benefits and the salary they received at the time of retirement. The amount that a person paid into a pension fund will usually not be directly related to the amount of benefits they receive, so the current balance of a pension account will not be relevant during a couple’s divorce.

Depending on the decisions made during a divorce case, one spouse may receive a percentage of the other spouse’s pension benefits. However, only the marital portion of pension benefits may be divided between spouses, and this portion is determined by dividing the number of years a person worked in a position where they earned pension benefits while they were married by the total number of years they worked. That is, if a person worked for a total of 40 years, and they were married for 10 of those years, the marital portion of their pension benefits would be 25%.

Spouses may decide how they will divide the marital portion of a spouse’s pension benefits in their divorce settlement, or a judge may make a final decision about this and other property issues in cases involving divorce litigation. The marital portion of pension benefits may be divided equally, or one spouse may receive a larger percentage, while the other spouse receives other marital assets.

To divide pension benefits, a Qualified Domestic Relations Order (QDRO) must be signed by the judge and submitted to the plan administrator. A QDRO will state that a certain percentage of benefits should be paid to an alternate payee (the ex-spouse). Using the example above, if it was decided that the marital portion of pension benefits should be divided equally between the spouses, the couple’s QDRO would state that once pension benefits begin being paid, the ex-spouse will receive 12.5% of the payments.

Contact Our Austin QDRO Attorneys

Pensions are just one of the issues that may need to be addressed during a high asset divorce. At Powers Kerr & Rashidi, PLLC, our experienced attorneys can help you gain a full understanding of the financial aspects of your divorce, and we will work with you to negotiate a divorce settlement that will meet your needs or advocate for your interests during divorce litigation. Contact our Austin, TX high net worth divorce lawyers by calling 512-610-6199 to learn more about how we can help with your case.

Sources:

https://www.ers.texas.gov/Contact-ERS/Additional-Resources/FAQs/Qualified-Domestic-Relations-Order

https://statutes.capitol.texas.gov/Docs/FA/htm/FA.3.htm