Pensions are considered marital property in a divorce in most cases, however, how a pension is divided and whether survivor’s benefits are payable is generally up to the divorce court. All or a portion of a spouse’s pension could be considered in the couple’s marital assets. How much is considered depends on when contributions were made to the pension account.
How Marital Assets are Divided
When determining how property will be divided in a divorce, the Court considers three categories: Spouse 1‘s property, Spouse 2’s property, and marital property. Normally, each spouse will retain his or her own property. Focus is placed on dividing the marital property. In a community property state, marital property is equally split 50/50 between spouses. However, in equitable distribution states like Illinois, marital property is distributed according to fairness instead of splitting in half. Regardless of the type of distribution, the division of a pension account can become a little more involved.
Why is Dividing a Pension Complicated?
Marrying later in life has become more common. Therefore, when coming into a marriage, the likelihood of one or both spouses already being somewhat established in a career is increased. This means one or both could have a pension or other types of retirement benefits already in progress. If a couple were to file for divorce after eleven years, only those eleven years would count as marital property. Whatever retirement benefits a spouse earned before getting married are considered his or her separate property. But what is tricky is that any earnings during that 11 years on that initial amount could also be determined to be marital property.
The courts may use what is called a coverture fracture to calculate what percentage of the non-beneficiary spouse is entitled to of the pension. For example, if a spouse has worked for 20 years earning a pension and has been married for 11 of those years, the non-beneficiary spouse’s share would be calculated by:
(11/20) x $ amount of pension benefit x % due to the non-beneficiary spouse
Protecting a Pension During a Divorce
It may be possible to avoid splitting a pension between spouses. But it does take some pre-planning or negotiation. Stipulations in a valid premarital agreement could dictate how a pension would be addressed in a divorce. Spouses may also negotiate to offset what one would receive from dividing a pension with something else of an equitable value, like the family home that has been fully paid-off or a life insurance policy that is equal to the amount of the pension share.