Written by Jonathan Breeden
You and your spouse were likely planning on a long life together, including your retirements. But divorce changes all of that, and it’s an important financial aspect of ending a marriage.
One or both of you may have retirement savings, like IRAs, 401(k)s, and pensions. What happens to that savings in a divorce? Do you each keep your own retirement savings, or is divided?
Well, that depends on your exact circumstances, but in many divorces, retirement assets are marital property and must be divided.
To determine what happens to your pension after a divorce in NC, the court must decide whether it is a marital or individual asset. If an asset is part of the marital estate, it must be divided between you or your spouse. If an asset is individually owned, then you keep it all.
Determining whether a pension or other retirement account is marital or separate property can be complicated. It depends on the type of account, when it began, and how long it overlapped with the marriage.
Typically, your spouse is entitled to half of the value that accrued during the marriage. If your pension began before the marriage, then your spouse is not entitled to half of its total value. In this case, they are only entitled to half of what accrued from the date you were married to the date you separated.
If you are eligible for a military pension after serving at least 20 years, then your ex-spouse may have a right to a portion of this retirement benefit. However, military divorces and pensions handled differently than private pensions.
For example, the Department of Defense will only cooperate with North Carolina divorce orders if you and your spouse were married at least 10 years, and at least 10 years overlapped with military service. If your marriage lasted at least 10 years during your service, then the Defense Financial and Accounting Services (DFAS) will send your ex-spouse their portion of the retirement payments.
On the other hand, if you were married less than 10 years, or your marriage did not overlap with your military service for at least 10 years, then the DFAS will not do this. You may still owe your spouse a portion, but you will be responsible for sending it.
You and your spouse can agree to divide your pension in various ways. Sometimes, one spouse will offer a lump sum to buy the other out. This may require the court or an appraiser to determine the exact value of the pension and calculate a fair portion. A pension’s value usually depends on when you are eligible to retire, your life expectancy, the anticipated value of the pension, and any factors that may reduce its value.
You and your ex-spouse may also agree to split the pension payments in the future. Your spouse may prefer this if they believe they will receive greater value by waiting than receiving a lump sum.
To effectively divide your pension, you need to enter a qualified domestic relations order (QDRO) to the divorce court. This establishes your spouse’s right to a part of your pension. This QDRO is given to the pension plan administrator, who then divides the benefits appropriately.
The QDRO is essential and it should be drafted by an experienced lawyer. This document makes your ex-spouse a co-beneficiary of the pension, which also makes them liable for their portion of the tax liability. Because of its importance, the QDRO needs to have specific language to be accurate and effective. A qualified attorney will be your best option to protecting your assets in a divorce.
Do not leave questions about your pension and retirement accounts until last. We know divorces are messy, but it is never too early to start learning about your rights and options.
Working with an experienced North Carolina divorce lawyer early in the process typically results in getting the best possible outcome, like a fair share of the pension and retirement funds you worked hard for.Attorney Jonathan Breeden will work to protect your pension and your overall financial security after a divorce. If it must be divided, he will strive for an equitable split that does not harm you down the line.