In Minnesota, property that is acquired during the marriage is considered marital property, regardless of whose name it is under, or who earned it. The standard for division of marital property during a divorce is that it must “equitable” which most often means equally. If you are a pension holder, this could mean that your pension may be divided between you and your spouse through the divorce process.
What is a pension?
A pension is a retirement asset; however it differs from a traditional 401(k) or IRA in that it does not have a running account balance. Instead, the account owner will receive a certain amount per month for the duration of their life upon retirement. Traditionally, individuals who work in a Union, government employees, and law enforcement have pensions associated with their retirement benefits. Historically, many employers offered pensions, however most traditional corporations have stopped funding employee pensions and have converted to 401(k) plans and other profit-sharing methods.
What is my pension worth?
A pension is likely worth more than the number reflected on the statement. Often the statement may reflect what the employee’s contributions are to the pension, or the refund value if the employee were to cash out their interest in the pension plan. However, the actual value of the pension asset is likely far greater than that amount. The best way to determine the true value of a pension if it is not going to be divided to have a present value calculated by an actuary. Not all pensions are created equal. Each plan is different as far as when your interest may be vested, what age you can retire at, etc. It is important if multiple pensions are being valued to be compared in an asset division that the same parameters are being used to make the comparison. You should consult with an experienced family law attorney to determine if this valuation process is appropriate in your case.
How is a pension divided?
Instead of assigning a value to your pension, the Court may order that it be divided. Which means that each spouse would receive a portion of the monthly payment amount upon retirement. A Qualified Domestic Relations Order often referred to as a QDRO is necessary to divide the pension account. Depending the specific plan rules and requirements the pension may be divided into separate interests, or ordering the monthly amount will be divided at retirement.
What to think about when dividing a pension?
Dividing a pension is often more complex than simply stating that each spouse gets half. There are many factors to consider. You should consult with a experienced family law attorney about how to negotiate division of this valuable marital asset. Some of the factors are as follows:
Will my pension benefit continue after my ex-spouse dies?
Is there an agreement to securing the other spouse’s portion of the pension with a survivor benefit guarantee? Meaning that the monthly pension payments would continue to the surviving former spouse, even after the plan member passes away? There is generally a cost to electing to have a survivor benefit, reducing the monthly payment received. It is important to agree upon how that cost will be divided and the amount of the survivor benefit that will be elected. It is important that there be clear agreements about these options before the pension holder retires, as often the plan will not allow them to be changed once they are elected.
Should my spouse benefit from my continued employment after our divorce?
Often the monthly payment associated with your pension increases as the contributing member continues to be employed. The agreement to divide the pension should include clearly defined parameters as what portion of the pension should be divided, limiting it to the period of marriage. Possible increases of income after divorce, that could impact the final pension amount should also be considered and protected. Having an experienced family law attorney to consult and negotiate the division is the best way to ensure your former spouse does not benefit from your future earnings.
I worked at my job before I got married, do I still have to divide my pension?
The short answer is yes. However, if you worked at your employer and began earning an interest in your pension before you got married, you have what is called a “non-marital” interest in your pension account. This means that a portion of your pension should not be included in the valuation or division of the account. It is important to notify your attorney of this fact so that your non-marital interest can be accounted for when dividing the asset.
If I work in law enforcement, should my pension be treated differently?
Maybe. Some types of plan, including those in police and fire, may contribute differently to their pension instead of contributing to social security. This is something that should be considered and may be accounted for in the overall asset division. It is important to have an experienced family law attorney to review your contributions and assist you in defining what portion of your pension may be affected by this difference.
Do I need to name my former spouse as beneficiary on my pension?
Maybe. If your pension was divided as a part of your divorce and your spouse is receiving a portion of your retirement at retirement, it is likely necessary to list that spouse as a beneficiary for their portion of the pension that was awarded to them. If you are the spouse receiving the benefit of someone else’s pension at retirement, it is important to ensure that the divorce agreement includes a requirement that you are listed as a beneficiary.
What if my pension was not included in my original divorce?
If a pension was not accounted for at the time of your divorce, this will likely create issues for you upon retirement. Your pension plan may not allow you to make retirement elections and start receiving pension payments until you can provide documentation that the account was awarded to you in the divorce process. If it was not accounted for at the time of the original divorce, you may have to return to court to address that issue before you can retire. It is best to ensure that all assets are accounted for and allocated at the time of the original divorce.
Contact Us Today
Minnesota’s Divorce Laws allow for parties to negotiate settlements between spouses, so long as they are fair and equitable. Achieving the best outcome in these negotiations, including your maximizing your pension interest rights upon retirement, requires experienced legal guidance. Having knowledgeable attorneys by your side who are familiar with pensions, and all of the aspects that need to be considered when dividing them is essential to the best possible outcome to secure your financial future in retirement. Working with one of the experienced family law attorneys at CC&S Family Law will ensure the best possible outcome for you and the division of your valuable retirement assets. Call us at 763-561-2800 for a free consultation.
