How to Keep Your Pension in a Divorce
For those nearing retirement, their hard-earned pension may be one of their most valuable assets. But divorce can complicate pension payouts and retirement planning if you don’t take the proper steps to protect this asset upfront.
While pensions are generally considered marital property up for division like bank accounts or real estate in divorce settlements, retaining your full pension or maximizing your share is possible in many cases.
This guide covers strategies to help safeguard your pension throughout the divorce process and retain more of your retirement nest egg.
How Are Pensions Treated in a Minnesota Divorce?
Pensions and retirement accounts are generally considered marital property under Minnesota law. This means they are subject to division like other assets in a divorce. The standard approach is an equitable distribution of marital assets. If you’ve been contributing to a pension for 10 years of a 20-year marriage, the marital portion may be 50%.
However, it isn’t always the case since most settlements aim for an overall equitable division between you and your spouse, not a 50/50 split. The goal is a reasonable outcome based on the total assets and debts involved. Your Minnesota divorce attorney can help you negotiate a fair settlement.
Other key factors:
- When was the pension earned? Only the portion accumulated during the marriage is considered marital property. If you earned pension benefits before marriage or after separation, those portions are generally not subject to division.
- What is the value of the pension? The court will determine the present value of pension benefits earned during the marriage. This establishes how much of the pension is marital property to be divided.
- What other assets need division? The court looks at the total marital estate and each spouse’s financial situation holistically. If you have significant other assets while your spouse has little retirement savings, you may be able to keep a larger share of your pension.
- What are the incomes and financial needs of each spouse? Courts aim for an equitable division that provides adequate retirement income for both parties. If your spouse is very dependent on your pension for retirement security, they are more likely to receive a larger share.
So, in reality, there is no standard 50/50 pension division in Minnesota divorce cases. The court decides division on a case-by-case basis, depending on the entire context.
Strategies for Keeping Your Pension in a Divorce
Facing a divorce in Minnesota? There are several strategies your Minneapolis divorce lawyer may use to help you retain your pension:
Negotiate an unequal division
Most states aim for an overall equitable division, not necessarily an equal 50/50 split. Given the specifics of your situation, you may be able to make a case for keeping a larger share of your pension while your spouse gets a greater share of other assets like the house.
Trade the pension for another asset
As mentioned above, you may need to forfeit other major assets if you want to keep the full pension balance or a greater share. For example, you give up equity in the home while your spouse waives rights to the pension.
Delay distribution to the alternate payee
If the plan allows, distribution to an alternate payee (your spouse) can be delayed until a specific age or future event like retirement. This allows you to retain control of the full pension until you start drawing retirement benefits.
Elect survivor benefits for ex-spouse
Some pension plans may allow you to retain your full pension if you elect a survivor benefit for your ex-spouse. This provides a stream of income to your ex if you pass away first. Make sure you understand how this works if going this route.
Argue separate property if justified
If you earned a significant portion of your pension before marriage or after separation, your divorce attorney can make a case for classifying those portions as non-marital property. This can reduce the overall marital share subject to division.
How Pensions are Divided in a Minnesota Divorce
If your pension is divided in divorce, how does it work? Let’s look at the process.
- Only the marital portion of the pension is divided. Your lawyer will work with a financial professional to value the marital share. This is based on years contributed during the marriage, and other factors noted earlier.
- A percentage of the marital portion is allocated to your spouse as the alternate payee. For example, your ex-spouse may be awarded 30% of the marital share.
- The written divorce decree and a separate court order will specify the percentage awarded to your ex. The standard court order is a Qualified Domestic Relations Order (QDRO). This QDRO establishes your ex’s rights to receive a portion of the pension benefits directly from the plan administrator when you start getting retirement distributions. The QDRO must comply with specific rules under the federal Employee Retirement Income Security Act.
Your Minnesota family law attorney will ensure the proper language is included to avoid any issues down the road.
Work With an Experienced Minnesota Divorce Lawyer
Getting divorced in Minnesota involves complex financial and legal matters, especially when significant assets like pensions are involved. For trusted counsel on how to keep your pension protected, contact our skilled divorce attorneys at Martine Law.
With an in-depth understanding of Minnesota divorce law and proven experience handling pensions, we will craft a legal strategy customized to your situation.
Don’t leave your financial future up in the air. Contact us to get started protecting your retirement benefits.