A Spouse's Rights to Pensions in a Divorce and How It Is Divided
Divorcing couples who begin to divide marital property often find that pensions and other retirement funds are their most valuable assets besides the family home. Because retirement accounts built during a marriage are typically treated as marital property, it’s important to understand the value of every pension or retirement fund held by either spouse so they can be fairly distributed.
There may be several factors to consider when assessing how a pension – or possibly multiple retirement accounts – are divided in a divorce. In many cases, it is more beneficial to avoid dividing a pension, such as by trading assets to create similar value. The availability of pension benefits may also affect alimony and child support calculations.
As your legal representatives, the divorce lawyers at Younce, Vtipil, Baznik & Banks will work to negotiate a separation agreement that ensures the division of pension assets is fair and equitable and protects your interests. If you are in the Raleigh, NC, area and do not already have a divorce attorney, contact Younce, Vtipil, Baznik & Banks to discuss your retirement accounts and those of your spouse and how they may affect your divorce settlement.
Phone 919-351-8765 or contact us online for a discussion of how we can protect your rights and ensure your needs are met.
Pensions as Marital Assets and Equitable Division
In general, assets acquired during a marriage are considered marital property and are subject to division as part of a divorce. When assets are divided, the split is supposed to be an equitable distribution.
In most divorce cases, the money in vested and nonvested pensions or retirement accounts such as a 401(k) or 403(b) for public school educators and nonprofit employees is treated as marital property. Some people have several tax-deferred accounts that make up their retirement assets.
Sometimes, we find 401(k) accounts that were rolled over to a third-party administrator after the individual left the sponsoring employer before the marriage. Such accounts may be treated as separate property not subject to distribution, despite their probable growth during the marriage.
Employer-sponsored pension/retirement accounts typically have vesting schedules, which require certain lengths of employment before the account holder is entitled to 100% of the funds. Some plans grant partial vesting, such as 25% after three years with the company, 50% after five years, etc. This may affect the value of an account at the time of separation.
One of the initial tasks when preparing to negotiate a separation agreement is to make an inventory of all assets of both partners in the marriage.
At this time, you would seek records from pension fund administrators to identify:
- Existing pension/retirement funds and vesting schedules/status as of your separation date
- Historical records of fund contributions, and account rollovers prior to marriage (if applicable)
- Present-day and anticipated values of funds if accessed at full retirement (age 67 for those born in 1960 and after)
- Fund rules, such as options for lump-sum or monthly payments, single-life payout (ending at account holder’s death), or joint-life payout (continued payment to the surviving spouse)
With this information in hand, we could work with financial specialists to establish the value of the retirement accounts. Factors that affect the value of a pension include the account holder’s age, retirement eligibility dates and/or vesting schedules, the anticipated value of pension contributions, and any factors that may reduce the fund’s value.
Once we establish the value of each account, we can work with you on a strategy for equitable division of these assets.
Dividing Pensions Between You and Your Former Spouse
North Carolina law uses a formula to determine how much of a pension is subject to division. The length of time a spouse was simultaneously married (up to the date of legal separation) and employed is divided by the total length of employment necessary for receipt of the pension. Therefore, if the husband was employed by the same company for all 10 years of a 10-year marriage and his pension vests after 20 years of service, then one-half (10/20 years) of the pension is marital property.
Normally, a spouse may not receive more than half of the marital portion of the other spouse’s pension, unless it’s necessary for an equitable distribution of all assets or the couple agrees to it, such as to avoid dividing other assets.
The parties may agree to split pension payments once they begin, or the spouse receiving the pension may make a lump-sum payment to buy out the other spouse. Either requires an appraisal of the pension’s value at the date of separation.
Our preference would be to avoid splitting your retirement accounts. If you must divide a retirement account and/or take a distribution (depending on your age), we would work to ensure that your tax liability is minimized.
If you must sell the assets of an investment account to establish equity in your overall division of assets, we would help you negotiate the timing of the sale to maximize the return on your investment.
For an account that is divided, we will ensure proper execution of the necessary “qualified domestic relations order” (QDRO). This is a contract that is ratified by the court to direct the administrator of an employer-sponsored plan to distribute funds to alternate payees. In most cases, a QDRO allows funds in a retirement plan to be divided and distributed without penalty.
The final step is to change the beneficiary on any remaining pensions, retirement accounts, or other secondary insurance policies that previously left money to your spouse. This is also necessary for accounts split under a QDRO. Otherwise, your remaining half of the account’s funds could eventually go to your ex-spouse if he or she survives you, regardless of whether you re-marry.
Safeguarding Your Interests as in a Contested Divorce
In a contentious divorce, the attorneys at Younce, Vtipil, Baznik & Banks would investigate to determine the extent of your spouse’s financial assets, including the approximate values of any pension and retirement accounts. When we have reason to believe an opposing party’s disclosures are not complete, we work with specialized investigators, such as forensic accountants, who can find hidden assets.
If our findings indicate the need, we can move to obtain a temporary injunction to prevent the disappearance or conversion of accounts under your spouse’s control. If one party is discovered to be concealing assets, the court’s sanctions may include requiring them to pay the other spouse’s legal fees or revising previously approved asset division agreements.
We would ensure that the court understood both sides’ needs and financial capabilities as it weighed equity in its decisions about the distribution of marital assets. We would have documents ready and verbal arguments prepared to support our recommendations for dividing marital property, including assets from pensions and retirement accounts.
We would act on your behalf after listening to you and obtaining a full understanding of what you are seeking in your divorce settlement. We will counsel you about the implications for the future of decisions you must make as a part of separation and divorce, including the tax consequences related to the division of pensions, retirement accounts, and other marital property. We are here to provide legal guidance that will help you make well-informed, forward-looking decisions as you move through the process of separation and divorce.
Contact an Experienced NC Pension Division Attorney
Hiring a divorce attorney experienced with the division of pensions and other retirement accounts in North Carolina is a smart move to protect your financial interests and rights as your marriage comes to an end. When you engage Younce, Vtipil, Baznik & Banks to represent you, we will put our attorneys’ experience and dedication to work on your behalf.
We believe in the importance of personalized client service. We use a state-of-the-art case tracking system to handle each client’s case and ensure that no detail gets overlooked. When you work with a marital asset division attorney at Younce, Vtipil, Baznik & Banks in Raleigh, NC, you’ll receive the attentive legal service you deserve.
There are multiple potential financial consequences that arise when the division of retirement assets is a part of a divorce settlement. Our family law attorneys devote their entire practice to family legal services and divorce matters in North Carolina, including the distribution of marital property and assets. To ensure that your interests are fully protected in a North Carolina divorce, call us at (919) 351-8757, or fill out our online form today. We will be ready to schedule a confidential consultation, and our staff members are fluent in both English and Spanish for your convenience.