Divorce can be a tough journey, filled with an abundance of tough decisions. One of the critical points of contention or confusion can revolve around financial rights and entitlements, especially when it comes to pensions and other retirement accounts. Have you ever wondered how much – if any – of your spouse’s pension you might be entitled to if you divorce? Whether you’re just curious or neck-deep in divorce proceedings, it’s crucial to understand your rights and the nitty-gritty of how pensions can be divided.
Ohio, like many other states, follows specific laws and guidelines. Typically, pension funds accrued during a marriage count as marital property and can be split between the spouses upon divorce. Conversely, retirement assets or benefits accumulated prior to the marriage are often deemed separate property and therefore are not subject to division.
In addition, the type of pension being divided, other factors such as the length of the marriage, the age and health of each spouse, and tax consequences must be taken into account.
Knowing the ins and outs of your retirement account is crucial to protecting your financial future post-divorce. Here is your guide to understanding the division of pensions and other retirement accounts during divorce.
Factors Affecting Your Entitlement to Spouse’s Pension
Determining entitlement to a spouse’s pension in the event of a divorce in Ohio revolves around several factors. Dividing these retirement assets often comes with tax consequences that must also be factored into the equation. Let’s look at these actors more closely.
Length of Marriage
Length of marriage plays an integral role in the division of retirement assets because it directly correlates with the period during which the retirement asset was built. Generally, any retirement account or pension fund accrued during marriage is considered marital property. This means, broadly speaking, the longer the marriage, the larger the fraction of the retirement benefit to be shared.
The division is usually not straightforward. For example, a defined contribution plan such as a 401k may have been initiated before the marriage, making it partially separate property. Determining the portion that is considered marital property can be complex, requiring proper legal advice.
Another division happens with a defined benefit pension, which provides a retirement benefit based on the number of years worked. Here, the calculation gets even more tricky. Precise valuation and division of these benefits require a skilled attorney or a plan administrator.
State Laws and Regulations
Ohio is an equitable division state. This almost always means that the marital portion of retirement accounts, including pensions, is divided equally.
Furthermore, it’s important to remember that pension benefits are usually regulated by federal laws, and sometimes these federal laws can override state laws. For example, retirement plans like 401(k) and traditional pensions are under the Employee Retirement Income Security Act (ERISA), which could influence the division decision.
Under ERISA guidelines, you can only receive your ex-spouse’s retirement benefits through a court-issued document known as a Qualified Domestic Relations Order (QDRO). This legal paper outlines the non-employee spouse’s right to a portion of the retirement account. It’s the purview of the plan administrator to enforce QDROs, highlighting the importance of precise documentation and legal advice.
Timing of Retirement Contributions
The timing of retirement contributions significantly impacts the division process. As previously mentioned, in Ohio, anything acquired prior to the marriage is considered separate property and is typically not divided during a divorce. Therefore, retirement contributions made before the marriage are usually not subject to division.
However, any increase in the value of the separate property due to contributions made during the marriage is usually considered marital property unless the growth on the value of the retirement accounts can be proven. This generally involves consecutive statements from the date of marriage to present day and the use of an expert to determine the growth. To effectively navigate this sticky legal terrain, it is advisable to get legal expertise to help assess the nature of these contributions.
Payments made to retirement plans after separation but before divorce can also be a point of contention. These contributions might be considered marital property since the couple is still technically married, underscoring the importance of time in pension contributions. However, if the parties have been living separately and are not presenting themselves as a married couple any longer, some judges may use the date of separation instead of the final divorce hearing date. Although no one can predict the future, working with a local attorney who knows the county courts and magistrates is crucial for reasons such as this, as they may be able to prepare you for what they believe the eventual ruling regarding timing will likely be.
What Types of Retirement Plans Can Be Divided?
Retirement assets can be classified into two broad categories: defined contribution plans and defined benefit plans. Both types of pension plans can be divided during a divorce, thereby providing a retirement benefit to each spouse.
Defined Contribution Plans
A 401(k) is probably the best-known example of a defined contribution plan. Usually, an employee contributes a certain amount into this retirement account offered by their employer, often with the employer matching a percentage of the contribution. The division of these assets at divorce is typically based on the contributions made during the marriage, with the goal to achieve an equitable distribution. If these accounts are considered marital property, the plan administrator will need a valid Qualified Domestic Relations Order to split the accounts without triggering immediate taxation or early withdrawal penalties for either party. A QDRO is a court order, judgment, or decree that recognizes the right of a spouse, former spouse, child, or other dependent to receive all or a portion of the benefits in a retirement account.
Another common defined contribution plan is an IRA, either Traditional or Roth. The calculation of the division is similar to that of a 401(k) but is often complicated when an IRA consists of previous 401(k) that were rolled into the IRA.
Defined Benefit Plans
Simply put, a defined benefit plan is a retirement plan where the employer promises a fixed, pre-determined retirement benefit – usually monthly – to employees based on their earnings history, tenure of service, and age. Oftentimes these plans are referred to as a pension, where the employer guarantees a specific monthly payment or lump sum upon retirement.
Government and Military Pensions
Government and military pensions are also generally considered defined benefit plans. These function quite differently from the defined contribution pensions, and the division process is somewhat tricky. The payouts of these plans are based on the employee’s or service member’s years of service, rather than the contributions made.
The division of these types of pensions in a divorce requires close attention as special rules often apply. It’s wise to seek assistance from legal professionals knowledgeable about such plans, and it’s especially wise to use a local attorney who might have experience in military divorce.
What Types of Retirement Plans Cannot be Divided?
Social Security Benefits in Divorce
While Social Security benefits are not divided in a divorce, you may have a right to benefits based on your ex-spouse’s work record. This area of law is complex and varies based on the duration of the marriage and the age of the parties involved, but if you were married at least 10 years and have not remarried, you may be entitled to 50% of your spouse’s social security benefits when they start to draw on it, if you are of retirement age. That may a bit of an oversimplification, but your divorce attorney should be able to tell you if you may qualify for your spousal benefits. It’s important to know that if you draw on your ex’s social security benefits, it will not impact how much they receive. They will receive everything they are entitled to, regardless of what you do. Social Security survivor benefits should also be discussed, in the event that your ex pre- deceases you and you’re still unmarried.
Disability Benefits
Disability benefits, such as VA Disability or state-sponsored disability plans cannot be divided in a divorce. Disability retirement is common in military divorce and law enforcement divorce. Military Disability is not divisible in any circumstance, however, the income received from disability retirement can be considered in calculating spousal support. State-sponsored disability plans are also protected from division, however, most of these will convert to an age and service retirement when the recipient reaches a certain age. Navigating state-sponsored retirement plans is complex and almost always requires the use of an attorney who has experience with these plans.
Options to Splitting Retirement Accounts
In this day and age, it is common for both spouses to hold full-time jobs, and it’s quite possible both of you will have your own retirement accounts. Depending on how close in value these accounts are, some couples find it easier to just say, “You keep yours and I’ll keep mine”. Small differences in value can be made up in other ways, such as a lump sum of money paid from one spouse to the other, so as to keep the division of assets equitable without going through the process of getting a QDRO. Or perhaps one spouse may be willing to give up their claim to the marital home in exchange for not dividing retirement assets. Remember, just because you’re entitled to a portion of your spouse’s retirement account doesn’t mean you have to take it. Figure out the value of your entitlement and see if there’s a better way to claim it! It is important to keep in mind that most retirement accounts are “qualified accounts,” meaning there are tax consequences and specific rules connected to any withdrawals. Because of these tax consequences and rules, money in retirement accounts is effectively worth less than cash in a bank account.
Choosing the Right Attorney
Financial concerns during divorce are usually second only to child custody concerns, and choosing the right attorney is crucial to both. Local attorneys who are familiar with the court where your divorce hearing will take place have many advantages over out-of-town attorneys who don’t know the Southwestern Ohio legal landscape. Attorneys in this area are also likely to have experience with military divorce proceedings. And experienced attorneys know the right questions to ask you to make sure they help you get everything you’re entitled to.
Get a Consultation
If you have questions about your legal rights to your spouse’s retirement account, call the team at Kirkland & Sommers and make an appointment with one of our experienced divorce attorneys. Getting your financial questions answered upfront may help you plot your path forward during this difficult time. Call us today or click the link below to schedule an appointment!