Pension authority Anne E. Moss, J.D., author of Your Pension Rights at Divorce, suggests that to divide a pension intelligently the non-participating spouse must find out “what kind of pension it is, how it is funded, and how it pays out.” Several points must be considered before a divorce is final.
Dr. Moss states that a non-participating spouse should know if their spouse has more than one pension or retirement plan from his or her current or any previous job. The spouse may be eligible for – indeed he or she may already be receiving– retirement benefits from any current or previous employer, for example, a company pension and also a 401(k) plan. For a non-participating spouse to receive his or her fair share, the marital settlement must refer to each plan in order. Both types of plans can be divided at divorce.
In general, the spouse who has worked five years has enough service to earn a legal right to the pension; however, if the spouse has worked for the federal, state, or local government, the non-participating spouse needs to learn the different rules that apply to those types of pensions.
An attorney can write to the pension plan administrator to get a copy of the most recent annual benefit statement; that is, how much he or she has accrued in pension benefits under each plan. The attorney can ask the court to order the plan to furnish one and request a summary plan description (SPD), which describes the key features and rules of the plan as well as any cost of living adjustments.
A pension may be worth more or is more complicated than the amount that appears on the annual statement. Normally, as part of preparation of a QDRO, a pension actuary or an accountant appraises the lump sum present value of the monthly pension.
The court order dividing a pension plan is often a Qualified Domestic Relations Order (QDRO). The QDRO must clearly specify what is to be paid to the non-participant. The amount can be stated as a fraction or percentage of the pension. It can be based on the total benefit earned as of the separation date, the date of divorce, the date he or she is eligible for retirement, or the date he or she retires. Most pensions provide for survivor benefits, so that the non-participant spouse’s benefits can continue if his or her ex-spouse dies first. Traditionally, company pension plans provide a survivor’s benefit of 50 percent of the amount the participant received. Non-participant ex-spouses can receive these benefits, but they must be specifically included in the order, or the benefits may stop when the participating ex-spouse dies.