Divorce Guide

Divorce Guide

Retirement Divorce Settlement

Retirement divorce settlement is a settlement where a person’s earnings and savings inside a marriage are calculated and taken into account when he/she is going through a divorce. For many couples, retirement savings are important assets. The divorce settlement retirement plans, have their own rules regarding the division of assets. Therefore, it is critical to determine what portions of such assets are dividable in a divorce settlement.

Retirement plans in divorce settlement

Retirement plans comes in various types, but break down into one of two groups. They are:

Defined contribution plans : A defined contribution plan is a plan that comes with a lot of money and has the employee’s name on it. A stated dollar contribution is periodically made to this plan, either by the employer, the employee, or both. The balance of the plan changes every year. This change is based on contributions that get made to the plan and to the extent of the money that grows in it with the earnings (capital gains, dividends, interest etc). Defined contribution plans have become increasingly more common than to defined benefit plans.

Defined benefit plans : Defined benefit plans are the ones in which the employer promises to pay the employee a particular amount when the employee reaches retirement age. Employers make contributions to the plan which can be topped up by the employee. The benefit that one receive is based on a formula which often considers the number of years that he/she have worked for the employer, his/hers average income over the last three or ten years, and other factors. The benefits one can receive could provide him/her with a steady income as long as he/she lives and it could increase with the cost of living.

Division of retirement funds

Once one comes to know the value of the plans, he/she can decide how to divide these assets. There are two options:
  1. Immediate offset: If one of the spouse is not getting enough money from some other assets, then the other spouse should help him/her with the money from his/her retirement fund.
  2. Division of the plans: One would wish to divide the value of the pension. This is relatively easy for defined contribution plans, but in the case of other plans, a Qualified Domestic Relations Order is required. This division of retirement plans is very important in retirement divorce settlement

Employee retirement plans are the biggest assets of a taxpayer in a retirement divorce settlement. In an equitable distribution of property, this should be taken into account. According to the property settlement, there is no recognized gain or loss on a transfer of property between spouses.

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