So, you’re considering a divorce. You probably have hundreds of questions, especially about money. And there are probably many issues to be considered that you just aren’t aware of. For example, did you know that Virginia law requires couples to participate in a six-month to one-year separation period before divorce?
Today, let’s focus on a single topic: how a pension is split during a divorce after a separation. You might also need to know how pensions and separation work. Or, perhaps you need a qualified divorce lawyer. For now, let’s take a deeper dive into understanding spousal pension rights after a divorce.
Pensions Vs. Retirement Accounts
Pension plans are not very common. They are typically given to people working for the government, federal or local. Sometimes a pension can be from a private corporation, but these are exceedingly rare.
When it comes to how pension plans work, it’s pretty simple. You and the employer contribute money each pay period into the pension plan during your term of employment. When you retire, you receive a fixed monthly payment for the rest of your life.
On the other hand, a retirement account, such as a 401(k) or IRA (Individual Retirement Account), is similar to an investment account. You alone or with your employer pay into the account prior to retirement.
Typically, this account makes investments in the stock market. When you decide to retire, the account balance is 100% yours, and you can do whatever you want with it. You could slowly take money out over many years or cash it out entirely all at once.
What Happens To Pension Payments In A Divorce?
First, we need to understand that there are two types of assets in a divorce under Virginia state law: separate and marital. Individual, separate property is anything acquired before the marriage began. Marital property is anything acquired during the marriage. And when it comes to divorce, Virginia is an equitable-distribution state.
So, where do pensions fall—separate or marital? It depends on when the spouse worked for the company and when the retirement starts or the pension ends.
Let’s look at three examples below:
Before he was married, Jim used to work at OMG Corporation. He worked there for five years and then started a different job before his wedding. He has a pension from OMG Corp. that pays him $300 monthly. Because he earned the pension before the marriage, it is separate property and is 100% Jim’s.
Now let’s look at a different situation. This time, Jim worked for OMG Corp. for 10 years, and he started working there after he was married. He was married the entire time he worked there.
Jim is now retired, and his pension pays $400 per month. Because Jim earned the entirety of the pension during his marriage, the Commonwealth of Virginia will consider it marital property. In the event of a divorice, the spouse is entitled to up to 50% of the pension—or, in this case, $200 per month.
Finally, we will look at a more complex scenario where Jim worked at OMG and contributed to his pension for five years before being married. Then Jim got married and continued working there for an additional five years, all while still contributing to his retirement.
Jim is now retired and receives a pension of $800 a month. The non-pension spouse is entitled to up to 25% of Jim’s pension. Because he worked there five years before the marriage and five years after, this breakdown can be considered equitable.
While reading this, you might also be wondering about spousal pension rights after a divorce. If so, you should begin gathering pension documentation as soon as possible to speed the process along.
Final Thoughts
Divorcing a spouse can be mentally and emotionally exhausting. Not only is your current life upended, but so is your financial future. During these difficult times, it’s crucial to have a knowledgeable divorce attorney at your side to guide you through the process.