When retirement plans and divorce coincide, it's almost inevitable that a court will divide the benefits between spouses. This happens at the time of your divorce, however. Your ex can't come out of the blue years later when you retire and demand a share, and it's highly unlikely that he'd be entitled to all your benefits in any event. Such assets are divided either equitably in equitable distribution states, or 50-50 based on community property law.
Marital Portion of Benefits
The portion of your retirement benefits subject to division with your ex-husband is that which you earned or which accrued while you were married. For example, if you began contributing to a plan 10 years before you married, the premarital portion is exempt and taken out of the equation. The same applies to anything earned or accrued after your divorce. Therefore, if you were married for five years, and if you kept contributing to the plan after your divorce, your ex would only have a right to a share of that five-year portion. If you contribute to the plan for 25 years overall, she would probably receive approximately half of 20 percent of your benefits, or 10 percent.
Division of Defined Benefit Plans
Courts are usually reluctant to force a spouse to cash in retirement plans early to give the other spouse a portion. This can eliminate years of potential growth and incur taxes and penalties. Therefore, if you have a defined benefit plan such as a pension, the court will typically order its division in one of two ways. If your ex is entitled to 10 percent of your pension, he can receive his small portion at the time you begin collecting. A qualified domestic relations order – familiarly known as a QDRO – authorizes the pension administrator to divert 10 percent to your ex instead of you each month when you begin receiving payments. Another option – if you and your ex have sufficient other assets and particularly if his percentage share is small – is for the court to order an offset. In other words, your ex would receive other assets equal to the expected value of those benefits, and you could keep your pension intact.
Defined Contribution Plans
If you have a defined contribution plan such as an IRA or 401(k), this is typically divided at the time of your divorce – you won't be forced to share with your ex years later at the time you retire. In this case, the QDRO would authorize an immediate rollover of your ex's share into a similar account in her own name. Provided this is accomplished pursuant to a divorce decree, there are no tax consequences. Alternatively, just as with defined benefit plans, you can offset your ex's share of your defined contribution plan with other assets.
Social Security Benefits
Your Social Security benefits aren't marital assets, but this isn't to say your ex might not receive some income based on your own work history. If you were married for 10 years or more, he can collect Social Security based on your work record as long as he's not married again and your benefits are greater than his. This doesn't diminish your own benefits in any way, however. Some courts – particularly those in equitable distribution states – will take Social Security into consideration when dividing your other retirement benefits and other assets. He might receive less than a 50 percent share because he has the ability to collect more Social Security based on your work history.
- DivorceNet.com: Dividing Retirement Benefits in Divorce – Pennsylvania
- Social Security Administration: Retirement Planner – Benefits For Your Divorced Spouse
- Law Offices of John T. Nicholson: Dividing Pension and Retirement Benefits in Ohio Divorce – Part 1
- Nolo: Dividing Property and Debt During Divorce FAQ
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.