Navigating the Complexities of Divorce and Pensions

While you navigate your divorce, you’ll have to make several life-changing decisions that influence your future financial stability and quality of life. If you or your ex-partner have a pension, knowing how that will be divided during your split is important. A pension can play a big role in your financial well-being after retirement, so don’t be surprised if it’s a point of contention during a divorce.

Looking for the right attorney to help you through your divorce? The team at Kirk Drennan Law is here to help. Call us at 205-953-1424 to set up a consultation with our team now.

Types of Pensions

The type of pension you have may influence how it is handled during your divorce. Defined benefit plans provide recipients with a set monthly payment after retirement. The amount is determined by the individual’s years of service and income throughout their career. These are subject to division during divorce.

Another widely-known option is defined contribution plans. These plans, which include 401(k)s and IRAs, do not provide a set amount to retirees. The value of the plan may fluctuate over time based on how investments perform. Since these plans may change in value over time, they require careful attention during a divorce.

Government pensions are one of the main reasons people stay in government jobs throughout their careers. This type of pension comes with strict rules and regulations, so it is important to work with a financial expert with extensive experience in handling these assets during divorce.

Understanding How Pensions Are Valued

There are several ways that financial specialists may value pensions. If pensions are improperly valued at this step of the process, one party may be significantly underpaid and the other significantly overpaid. For this reason, it’s important to work with a divorce attorney who can connect with financial experts with experience in this area.

One approach to pension valuation is the present value method. This approach looks at the current value of the pension by utilizing a variety of calculations. Factors that may affect the current value include life expectancy, projected future earnings, and inflation. Another option is deferred division. Rather than splitting up the pension at the time of the divorce, the couple decides to divide it when the employed partner retires. The terms and conditions of the split must be detailed in your divorce agreement.

If one party wants to keep the entirety of the pension and avoid splitting up this asset, they may choose to buy out the other party. This usually involves providing cash and other assets to make up the value of the pension. Individuals often go this route to avoid complicated tax issues and other concerns.

Dividing Pensions Fairly

Ensuring a fair division of assets is a top priority in divorce. Both spouses’ lawyers will consider a range of factors to decide how to split up the pension. Should the parties be unable to resolve the issue in negotiations, the final decision goes to the judge. They will base their decision on the rules of equitable distribution in Alabama. Some factors that may affect the division of a pension include:

• Marital contributions to the pension: Money contributed to the pension before the marriage is usually considered a separate asset and is excluded from division.

• • Future contributions: This is handled differently in each divorce. In some cases, future contributions are not split and as a result, the non-employed spouse’s share may shrink over time. In others, the non-employed spouse’s share continues to grow as the pension grows. This may be the case if the non-employed spouse made significant contributions to support the working spouse’s career.

• Other assets: If other assets are given to the non-employed spouse in exchange for the pension, that will affect how the pension is handled.

Start Your Case with the Team at Kirk Drennan Law

Pensions are a complex topic in divorce. You will want to work with an attorney who can help you navigate the tax implications of retirement funds, survivor benefits, and using a QDRO to avoid tax issues. Let us support you through this trying time. Set up a consultation now by calling us at 205-953-1424 or filling out our online contact form.