Retirement and pension plans can be the largest marital asset to divide in a divorce in terms of value. This is especially true in cases of long-term marriages. And equitably dividing these financial assets in a divorce can be quite complicated, depending on each couple’s individual situation.
For example, if one or both spouses in a divorce is a current or retired federal employee of the U.S. Postal Service, the IRS, the FBI, the Department of Labor, the FAA or a similar government agency or division, unique and specific rules apply to how these retirement assets should be addressed in a settlement. Furthermore, the government doesn’t automatically grant an ex rights to employee benefits.
As in all divorces, pensions or retirement plans are considered community marital property, unless the government worker was employed prior to marriage, creating a fractional separate interest. As marital assets, if not divided 50/50, they must first be valued in order to determine an equitable distribution in a settlement.
The three major federal pension plans most commonly encountered in a divorce are Civil Service Retirement System (CSRS), the Civil Service Offset plan and the Federal Employees Retirement System (FERS). Unlike private pension plans, government pension plans are exempt from rules established under ERISA (Employee Retirement Income Security Act of 1974). For instance, one of the biggest differences is that a government pension cannot be paid to a former spouse until the worker has retired.Each pension listed above is very different in how its value is calculated, and in how and what benefits can be paid to a former spouse.
The Office of Personnel Management administers federal pension plans, but will NOT calculate the value of accrued benefits as of certain dates. Many excellent family law attorneys who specialize in divorce don’t have this expertise and often consult with a financial planner who does.
Pension benefits to be paid to a former spouse must be clearly defined in the legal documents, since typically they all must say the same thing. Rules regarding disbursements of spousal benefits in these plans require specific language in MSAs (Mediated Settlement Agreements), QDROs (Qualified Domestic Relations Orders), final divorce decrees and court orders. For this reason, standard MSAs, QDROs, decrees and court orders won’t work. Any cost of living adjustments, survivor benefits, as well as health and life insurance coverage may be disbursed to a government employee’s former spouse using these documents as long as this is stated according to the respective plan’s explicit rules for divorce decrees and court orders.
If you or your spouse works for or are retired from a job with the government, it’s a good idea to do some homework early in the divorce process to ensure you fully understand what’s required and what procedures you must follow to determine your rights to this valuable stream of income. Also, find a certified divorce financial analyst with experience in this area to help you. Basic information can be obtained from the Office of Personnel Management by visiting www.opm.gov/retirement-services/publications-forms/pamphlets.
For more information:
divorce financial planning or divorce mediation, visit Patricia’s website, Lifetime Planning.cc.