Often when two parties get divorce, they completely forget about the pensions. While this is great for the person that holds the pension, for the non-holder they are missing out on a share of what is rightfully theirs when they reach retirement age.
Unlike some other states that are a community property divorce states, Minnesota is an equitable distribution, or common law, divorce state. The difference is easy, in community property states, the assets of a marriage are divided up equally while an equitable distribution state will see them divided equitably. As an equitable distribution state, Minnesota can see up to one half of your marriage assets awarded to the other spouse if they possess less independent equity than you. However, often they will receive much less.
That is all pretty standard and understandable for many assets that were gained throughout the marriage, but what about the retirement accounts like IRA’s, 401(k) plans, and pension plans? However, the division of each retirement options gets a little more trickier than the previous. IRA’s are easy to divide, as they can be done by direct rollover. Once the divorce decree comes in saying how the IRA can be divided, the non-holding spouse takes that decree to the bank and they roll a specific dollar amount over to a new account for the ex-spouse.
401(k) plans get a little more difficult. They will require a Qualified Domestic Relations Order, or QDRO. This QDRO is a court order that directs a plan administrator in order to take money from a 401(k) and give it to the non-holding spouse. Although it has more legal legwork, the result is the same. Money will be taken out from a 401(k) and put in another account after the divorce.
Finally, there is the act of dividing up a pension. Ultimately what makes dividing a pension so tricky is that it is paid out in an indeterminate payout where the holding party will get a certain amount each month. However, if the courts determine that the non-holding party doesn’t have enough retirement equity, it can and will be split. Instead of having money taken out of the pension in a lump sum and put in another account like other retirement options, instead the courts will rule that the non-holding party gets a certain amount paid out each month after the holder retires.
The amount you get when you split a pension can vary demanding on how much it is and how many people are sharing it, such as if the holder has had multiple divorces. However, the QDRO determines it as the non-holding spouse can get up to one-half of monthly payments that are attributable to the years of the marriage. However, anything put in the pension for the holder during their post-marriage years is fully theirs.
So what happens to the pension payments when one party dies? That is actually one of the more simple aspects of dealing with splitting up a pension during a divorce. If the non-holding party dies first, then the holding party will then regain full pension payments each month. However, if the pension holder dies, then the non-holding party can still continue to collect the payments. However, this survivor annuity will need to be written in the QDRO and the non-holding party may receive slightly less per month. Think of it as paying for insurance.
When it comes to finances, divorce is never very simple. However, especially when dividing up the retirement accounts, you need an experienced attorney at your side. If you are going through a divorce and there are a lot of retirement accounts to divvy up, contact Beckman Steen & Lungstrom, P.A. today.