Nolo's Essential Guide to Divorce - Emily Doskow [122]
Keeping your own pension and giving your spouse equivalent assets. This is a common way of dealing with retirement benefits, because it is clean and simple. But it may not always be the best for the spouse being bought out if that person doesn t have other tax-deferred savings. To accomplish a buyout, you'll ask an actuary to figure out the present value of the benefits and calculate the share that your spouse is entitled to. You'll then give your spouse other marital assets or a lump-sum cash payment.
If each spouse has retirement benefits, there will be a certain amount of offset. For example, say that you and your spouse each have defined benefit plans through your jobs. An actuary determines that the present value of the marital share of your pension is $40,000 and the present value of the marital share of your spouse's is $60,000. That means that to equalize things, your spouse needs to pay you $10,000 (half of the difference) or give you other assets worth that much.
If you're buying out your spouse's share of your pension, your spouse must sign a special form with your employer, making clear that the benefits are yours alone after the divorce. The employer will provide the form if you ask for it.
Spouses sometimes trade a share in retirement benefits for the marital home. If you're considering such a trade, consider the longterm ramifications. If you don't have future retirement income of your own, giving up your share in your spouse's benefits may leave you scrambling to plan for your future.
When trading pension benefits for any marital asset, be very cautious and get the advice of an expert. There are very few circumstances in which you should trade the present value of a pension for an asset of exactly the same fair market value. Retirement plans are extremely valuable because of the value of tax-deferred growth. A retirement account with $10,000 in it today is worth more than $10,000 cash because the pension's tax-deferred status gives it greater growth potential.
Splitting the benefits at retirement. Actually dividing the retirement benefits is more complicated, because it requires a separate court order. However, especially because many women don't have retirement benefits of their own, it is sometimes a necessity. It may also make sense where there aren't enough other assets to equalize the divisionin other words, if the spouse who earned the retirement benefits can't afford to buy out the interest of the other spouse.
To have retirement benefits distributed in the future, you'll need to ask the court to approve a Qualified Domestic Relations Order or QDRO (pronounced "quadro"). The QDRO directs your retirement plan administrator to distribute the benefits at your retirement according to the percentages that you agreed to or that a judge ordered.
Get a lawyer! You'll need a lawyer to draft a QDRO, which is a technical document that needs to be just right. Mistakes can cause benefits to go down the drain instead of to the nonemployee spouse and can trigger undesirable tax consequences. There are lawyers who do nothing but draft QDROs, and if you don't already have a lawyer, the actuary who calculates the value of your benefits can refer you to one. (Don't use an Internet document service for this.) The QDRO will probably cost about $500, but it's worth whatever you pay for it. You need a similar order if one of you is in the military or is a government employee, but the details are different-another reason to hire a lawyer who knows the difference and can draft the document you need.
Defined Contribution Plans
Much more common than pensions are defined contribution plans such as 401(k) plans. These plans are voluntary and require your active participation in getting yourself enrolled and managing your benefits. You often have control over how