How Divorce Affects a Pension

By Renee Gerber , last updated November 24, 2011

Because divorce has risen so high in the United States, more and more older individuals find their marriages coming to an end and this can adversely affect a person's pension. Unfortunately, your pension, Social Security benefits and other items relating to your retirement can be impacted by an impending divorce. This is nothing new with a divorce that occurs later in life, and you should know what to expect so that you can be better prepared.

If you are undergoing a divorce later in life, you will have to take certain very important steps toward protecting your finances so that you can retire once you reach the appropriate or legal age to do so. Getting a summary plan description of your retirement plans through your place of employment is necessary so that you can look over what is mentioned in regard to your pension and 401(k) plan. You will be able to see how much money you have in your retirement plan and will have to value it. Unless you are already at the legal retiring age of 65, you will most likely not want to touch it because it will be considerably less than what it would have been. You will also have to take into account the tax bracket you will be in, which also has an effect on the amount of retirement you will earn.

Generally speaking, even after a divorce, a formerly married couple can either split the finances from their IRAs and 401(k) accounts or the individual who contributed to the account can claim it all alone. Depending on the state in which you live, the balances of these accounts will be taken into consideration from the time of the marriage, which means that it can be considered that person's or divided up in a percentage -- as opposed to a specific dollar amount -- between the two parties.

In the instance that one party had been saving for their retirement prior to getting married, this will be taken into consideration during divorce proceedings. A former husband or wife will have a separate claim toward their own finances, in this regard. This will be considered separate property as opposed to marital property.

The party who has earned their own pension for retirement can either buy out their former spouse or can choose to give them a share of the money. In many instances, the latter will occur when the other person has not earned their own pension and requires this money in order to live and support themselves. Of course, the grounds for divorce may play a large part toward the individual's decision on exactly what to do. In some cases, the person who earned the pension can keep the entire amount yet allow the other party to receive property that equals in value to that pension. To determine the value, the court will either divide assets and property in a 50-50 manner or you can receive an actuarial analysis. On the other hand, the court can decide that the individual receive a certain percentage of the pension earner's benefits.

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