Is My Pension Protected in My Divorce?

The U.S. Centers for Disease Control and Prevention reports that divorce rates have diminished in the last two decades from nearly one million in 2000 to less than 650,000 in 2020. While this may be good news overall, if you are currently facing the prospect of a divorce, you are likely more concerned with numbers related to your finances. There’s a lot a stake during divorce proceedings, although retirement plans seem to be one of the most pressing and highly contested.

What Happens to a Pension in Divorce?

Under Maryland’s family laws, pensions earned by one spouse are generally categorized as a joint asset. The same applies to other retirement accounts, including 401(k)s, 403(b)s, and IRAs. In most cases, whatever is earned before the couple is married remains individual property and will be ordered to the respective spouse in the divorce. On the other hand, what is acquired during the marriage is considered a joint asset that is typically divided equitably like other joint assets such as vehicles or properties.

Even still, dividing a pension in a divorce sometimes becomes a complex situation. For instance, unless you are actively receiving a pension, which would provide you with the detailed payment amount and frequency, it can be challenging to determine how much it is worth.

Another potential complication is that while a pension is frequently considered a joint marital asset, that doesn’t necessarily mean it will be split 50/50. How much the pension grew during the duration of the marriage, and the type and value of other joint assets can impact the fate of your pension.

However, keep in mind that a military or government pension has its own rules. As such, they may not fall under the same rules when splitting your other assets during a divorce.

What If You Signed a Prenuptial Agreement?

Suppose you and your spouse signed a valid and enforceable prenuptial agreement that protects your pension plan. In that case, it will remain yours in accordance with the agreement. As long as a judge doesn’t find a reason not to enforce your prenup, whatever the agreement says will determine the outcome. If this is the case, your soon-to-be ex-spouse won’t have any grounds to refute it.

What is a Qualified Domestic Relations Order?

To receive part of your pension, your spouse will need to specifically ask for their share when the divorce is filed – not when you retire. Gaining access to a pension in this way is done via a court order known as a qualified domestic relations order (QDRO).

If your spouse is legally entitled to receive a portion of your pension, it will be withdrawn during the divorce settlement and then transferred into their own retirement account, which is typically an IRA. However, when using a QDRO, the receiving spouse is exempt from the tax consequences of receiving their pension settlement.

An Experienced Divorce Attorney Can Help Protect Your Rights

Your spouse may not be entitled to any of your pension or as much as they think they should be. Don’t simply give in to their demands. Instead, speak to an experienced divorce attorney who can apprise you of your rights and help you with your next steps.

Contact our office today.