Settling a divorce usually means going through all possible assets and finding a way to distribute them between you and your spouse. Sometimes, assets include benefits provided through a spouse’s work, such as retirement benefits.
Deciding what happens to these benefits in a divorce can be complicated and depends on a lot of different things, such as what type of retirement plan you have and how much is in it. It’s always important to review your retirement plan terms and conditions thoroughly.
Under what circumstances would a retirement plan be divided?
Retirement plans are usually either defined contribution plans or defined benefit plans. A defined contribution plan is where the employee puts a percentage of their paycheck into the retirement plan, and their employer sometimes matches it.
Defined contribution plans are easy to divide in the case of divorce. After a judge has ruled in court how much of the spouse’s retirement plan should be given to the other spouse in the divorce, it’s typically completed as a wire transfer.
What if you have a defined benefit plan?
If you have a defined benefit plan, the court will need to follow special instructions to divide the plan appropriately at the time of your divorce. In a defined benefit plan, the court will issue an order to the employer that upon payout, a certain percentage must go to the former spouse.
In this case, it might be years before the former spouse sees a payout from the defined benefit plan. However, even though the money is not leaving the account, the former spouse is not entitled to whatever money is put into that account after the divorce.
It’s normal to have questions about your divorce or what happens to retirement plans. You may want to reach out to a lawyer to discuss all your options.