In Minnesota, retirement assets that are accumulated during the marriage are generally considered marital property and subject to division during a dissolution of marriage (divorce). This includes assets such as 401(k)s, pensions, and IRAs. Marital assets are divided between both spouses in a manner that is fair and equitable, even if only one spouse contributed to the funds. The court applies the principle of “equitable distribution,” which aims for fairness, but does not require a 50/50 split.
The division process for a pension can be complex for several reasons. Pensions are considered “defined benefit plans”. This means the pension will pay a certain amount at the time of retirement. There are not funds sitting in an account that can be easily calculated or divided. Also, pensions can be accumulated over many years or even decades, meaning some of the benefits could have been accumulated before the marriage and could be considered non-marital property and may not be subject to division. Many pensions also cannot be collected or paid out until the employee retires, which may not happen for many years.
In practice, there are typically two main ways to divide a pension. First, a spouse could be awarded a certain percentage or dollar amount of the pension payment that would begin at the time of retirement. The percentage or amount typically depends on how long the parties have been married in relation to how long the spouse’s pension has been accumulating value. Second, the parties could have the estimated value of the pension calculated and the estimated value could be factored into the overall property division. For example, a set dollar amount could be awarded to the spouse or the spouse could “buy-out” the other spouse’s share.
There are many factors that will impact the amount and method of a pension division. The court will look at the age of the parties, how close they are to retirement, and the value of any other retirement assets to determine what an “equitable division” of the pension may be. Other factors that should be considered include whether the pension is already being paid and what the pension rules are for collecting any pension funds that may be awarded to a spouse (e.g., do you have to wait until retirement or can it be paid out now).
Dividing a pension during a divorce can be very complicated. From determining the value of the pension to evaluating the payment terms and addressing tax implications. It’s also important to note that the division of retirement assets in a divorce may have significant long-term financial impacts. Not to mention that you will need an additional court order, called a Qualified Domestic Relations Order (QDRO) to facilitate the division of a pension.
Therefore, individuals going through a dissolution, especially if a pension is involved, should seek professional legal and financial advice to ensure that their rights are protected and that they understand the full impact of asset division on their financial future. Contact Rochford Langins Jarstad LLC to speak with an experienced family law attorney. We serve Southeast Minnesota including Wabasha, Olmsted, Dodge, Winona, and Goodhue Counties.