One of the steps in the divorce process is the division of marital assets and debts. For some couples, one of the most valuable of those assets is a pension or other retirement fund. The spouse who earned the pension often feels that he/she is entitled to keep the assets held in the account while the other spouse typically feels that the assets should be divided equally. To make things more difficult, assets accrued in a pension fund may not be accessible yet. To help clear things up, a Murfreesboro divorce attorney at Bennett, Michael & Hornsby explains the division of pensions in a Tennessee divorce.
Division of Marital vs. Separate Property
Tennessee is an “equitable distribution” state, meaning that marital assets should be divided fairly. It does not mean assets will necessarily be divided equally. Before deciding how the assets will be divided though, you must determine which assets are subject to division. Only marital assets, defined as assets acquired or earned during the course of the marriage by either party, are subject to division in a divorce. Separate assets, such as property owned prior to the marriage or an inheritance acquired during the marriage, are not part of the division of property in a divorce. Generally, a pension or other retirement account that is earned by one spouse is usually considered a joint asset; although, pensions are governed by federal law whereas other retirement accounts, such as 401(k)s, 403(b)s and IRAs, are governed by state law. In most cases it is easy enough to determine if an asset is a marital asset or separate property; however, just to further muddy the waters, a pension or other retirement account may include both separate and marital assets. If the account existed prior to the marriage but continued to grow during the marriage the funds accrued in the account are likely separate and marital assets. As such, the first step in a divorce is to decide how much of the assets held in a pension account are subject to division.
How Is a Pension Divided?
Funds accrued in a pension are not distributed until you reach retirement age. Even funds held in other retirement accounts may not be accessible (without a significant penalty) until the account holder reaches retirement age. That adds another layer of difficulty to dividing those assets in a divorce. If assets held in a federally governed pension need to be divided in a divorce, a federal law known as the “Employee Retirement Income Security Act (ERISA)” requires specific procedures to be followed to add an additional or alternate payee to the account. A Qualified Domestic Relations Order (QDRO) must be executed. A QDRO is a court order granting one spouse a right to a portion of the retirement benefits of the other spouse that were earned through an employee retirement plan. It provides the plan administrator with the legal authority to distribute the funds to someone other than the account owner and explains in detail how the funds are to be divided upon distribution. Many other types of retirement accounts are also subject to the rules found in ERISA.
When Will I Receive My Portion of the Pension?
If a pension (or other retirement account) is part of your divorce, and you are not the owner of the account, you may want to know when you will receive your portion of the funds. The answer to that depends on a variety of factors, including:
- The type of retirement account
- Whether the funds are “vested” or not
- State laws that may govern the account
- The terms of your marital settlement agreement
- Tax consequences
It may be possible to receive your portion of the assets at the time of the divorce; however, there may be tax consequences if you choose to do so unless you roll the funds over into your own account. According to the Internal Revenue Service, a spouse or former spouse who receives QDRO benefits from a retirement plan reports the payments received as if he or she were a plan participant. Given the complex nature of pension and retirement plan division in a divorce it is wise to consult with an experienced divorce attorney if your divorce will involve the division of a pension funds.
Contact a Murfreesboro Divorce Attorney
If you have additional questions or concerns regarding the division of pensions in a divorce, it is in your best interest to consult with an experienced Murfreesboro divorce attorney to ensure that your rights are protected throughout the process. Contact the team at Bennett, Michael & Hornsby as soon as possible by calling 615-898-1560 to schedule your free appointment.