The reasons for not pursuing a pension division after a divorce are as plentiful and varied as divorces themselves. Many people do not know that they have to actively pursue pension and 401(k) division via a separate court order, typically called a Qualified Domestic Relations Order (QDRO). Some people cannot afford the extra expense and decide to wait until they are more financially secure. And a few simply do not want to chase down a share of their ex’s pension – they’d rather just let it go.
If you’re the employee-spouse, otherwise known as the participant, you might be wondering what happens if your ex-spouse (the non-employee or “alternate payee”) comes calling for your retirement account many years after the divorce. Do they waive their share by not pursuing it sooner? What if the divorce agreement forgot about retirement accounts altogether? And what happens if you retire, and then the ex comes around – do you have to pay him back for his share of those first payments?
The answers depend on several factors, such as the laws of your state, the details of your pension plan, and whether you have a financial settlement agreement in place. For the non-employee, the better answer is this: just do the QDRO. But for the employee, if many years have passed, and you aren’t okay with handing over part of your pension, you should consult with an attorney first before signing a late-coming QDRO.
Refer to Your Settlement Agreement First
A financial settlement agreement is a legal document that sets out how you and your ex will divide your assets, including your pension, after the divorce. It is approved by the court and becomes legally binding. If you have a financial settlement agreement that states that your ex has no claim to your pension, then he cannot claim it years later. It is important, if you are still going through a divorce, to ensure that retirement accounts, such as pensions, are addressed in your agreement.
In most cases, your settlement agreement (or order from the court, if you could not settle the case) will address the retirement accounts. Often, the language will be as simple as “divide the retirement accounts by QDRO.” Sometimes, the language will go further and specify dollar amounts, percentages, or a formula for division, such as the “time rule,” “Coverture formula,” or will refer to an older legal case to instruct the parties on how to divide the pension, such as the Brown rule or Majauskas formula. (Pretty much every state will have old case decisions that deal with pensions and the names of these cases become shorthand for the division method.)
Specifically for pensions, the time rule, also called the coverture formula, is the most common method of division. It converts the service time accrued during the marriage, as a fraction of the total career, to a percentage award that can be applied to each pension check, lump sum payment, or other benefit paid – you can read more about the time rule division method here.
If Your Divorce Documents Do Not Provide Answers, You May Need a Lawyer
If you do not have a financial settlement agreement or court order that addresses your pension, then you are stuck in a murky position of having an “omitted asset.” In these cases,the law varies by state – in some states, omitted assets can be claimed at any point, so long as they existed before the divorce. In other states, if the asset was not addressed in your settlement agreement, it is effectively waived. In the case of a pension, this could either mean that the non-employee spouse is completely out of luck or he will have to pursue legal remedies to establish a right to the pension before he can proceed with a QDRO to divide the pension.
To establish a right to a pension that was omitted in the divorce, assuming your state allows such omitted assets to be divided, the easiest solution is for the parties to agree and simply draft a modification or supplemental asset division agreement that addresses that asset. In many cases, such cooperation is mere wishful thinking and the party wishing to secure a right to the other’s pension will have to file a motion in court to decide on whether such rights can still be secured. Given the value of a pension generally (monthly income for life), and the difficulty of securing an omitted asset years after a judgment, most people are best off consulting with a lawyer on these types of motions.
Is There a Time Limit on Dividing a Pension?
In most states, there is no legal time limit on dividing a pension, especially if the right to the pension was addressed in the original divorce paperwork. Technically speaking, the right to a portion of pension payments doesn’t vest (become due) until the employee-spouse actually retires, which can be years after the divorce. It may be the case that, if an employee retires and commences pension payments, and the other party still hasn’t gotten around to preparing a QDRO to divide the pension, that an unsympathetic court does not award the arrears that accrue between retirement and the issuance of a QDRO, but there would still likely be a right ot have a QDRO entered to split future payments.
An important disclaimer: while most states do not have a time limit for dividing a pension, some do. Kansas, for example, as an “anti-lapse statute” that has been used in retirement division disputes to prohibit the non-employee spouse from asserting a claim many years later unless they had good reason for the delay.
How Much of My Pension is Divisible?
The amount of pension that your ex can claim depends on the laws of your state and the type of pension you have. In most states, only the portion of the pension that was earned during the marriage is divisible, while in others, the entire pension may be considered marital property. The type of pension you have may also affect how it can be divided. For example, some pensions offer a lump-sum payment or a monthly annuity, while others offer a survivor’s benefit that continues after your death. Each of these is an opportunity for parties to fall into a dispute over the fine print of a QDRO, and most divorce settlements (arguably out of negligence) don’t address these ancillary benefits, like survivor payments.
Keep in mind also that, once a person retires, the ability to change survivor benefit amounts or beneficiaries may be lost – the non-employee, therefore, has much to lose by waiting.
There are different ways to split a pension in divorce, such as a fixed dollar amount, a percentage of each payment, or the time rule, which is considered by many to be the most fair division method. Each option has its own advantages and disadvantages, and you should consult a professional to help you decide which one is best for your situation.
Take The Next Steps
The bottom line is that your ex can typically claim your pension years after divorce if you do not have a divorce agreement that prevents her from doing so. Check your divorce paperwork first to see what rights are outlined in that agreement, and if it does not mention retirement benefits or a pension, it is important to address this issue as soon as possible and seek legal advice to protect your retirement savings.
If your divorce paperwork does mention retirement benefits, in nearly all states, there is no time limit for your ex to come around and ask for her share. In that case, your best route forward might be to cooperate and prepare a fair, accurate QDRO using our software or the services of an attorney for contentious or complicated division scenarios.