Being enrolled in a defined benefit plan, also known as a pension plan, gives you the benefit of receiving a guaranteed amount of income during your retirement. It also ensures that your spouse will be provided for in the event of your death, although your employer is allowed to set conditions on the payout method. On the other hand, a pension could end up becoming the source of aggravation and heated arguments if you decide to divorce.
Even if you haven't filed for divorce, you've probably heard stories from family and friends who have had to hand over significant portions of their retirement funds to their former spouse. This is especially galling when you consider the fact that you worked hard for this money. Unlike other properties that you paid for or managed together, a pension is a benefit you earned on your own. According to the statutes, however, retirement funds that were acquired in the course of a marriage are marital properties, which are subject to the laws of equitable distribution. While this seems unfair, keep in mind that were you to have stayed married, your retirement funds would have benefitted both of you. The courts also stipulate that your spouse can only receive a portion of the funds that were accrued while you were married.
Unfortunately, it is possible that your spouse may be granted approximately half your pension if you started the plan after you got married. However, calculating just what your spouse will receive is incredibly complicated because the ultimate value of a pension depends on many factors. The key challenge for a pension plan is that there is no definitive current value, since the value is based on factors such as how long you stay at your job, and your salary history throughout the years. The best that can be determined is a "fair market value", which typically needs to be calculated by a forensic accountant. The most common payout method is deferred distribution, meaning that your spouse will receive his or her monthly portion upon your retirement.
Hiring a forensic accountant might seem like a waste of money, but obtaining the most accurate value of your plan is essential to protecting your long-term interests. You may also have defined contribution plans such as IRAs and 401(k)s, which require a different valuation method. These plans can be distributed to your spouse through a tax-free method known as a "rollover", but you will be required to file a Qualified Domestic Relations Order (QDRO). As you can see, there are numerous related complications that you may need to consider, which can be explained to you in detail by the experienced divorce attorneys of Villani & DeLuca, P.C. Along with giving you legal advice and helping you negotiate the fairest settlement possible, our attorneys can refer you to local, well-reputed professionals such as accountants, therapists and mediators. Please consider speaking with one of our attorneys during a free initial consultation.