How Are Pension Benefits Addressed and Divided During a Divorce?

 Posted on May 30, 2024 in Bankruptcy

During the divorce process, a couple will need to divide many different types of assets. Matters related to property division can become complicated, and while assets will not need to be split in half exactly, the division should be fair, with each spouse receiving sufficient financial resources to address their ongoing needs while reflecting their contributions to the marriage.

In addition to the physical property and financial assets owned by a couple, retirement assets will also be an important factor to consider, especially if either spouse will be eligible to receive pension benefits in the future. Understanding how pensions are addressed and divided during a divorce is crucial, since decisions about pensions can affect the financial future of both parties. An experienced attorney with Farooqi & Husain Law Office can help navigate these intricate issues and ensure that retirement assets and other types of property will be divided fairly.

When Is a Pension Considered Marital Property?

All forms of income earned by either spouse while married, as well as any assets a couple acquires, are considered marital property. This means that pension benefits will be considered marital property if one spouse earned them during the couple’s marriage. Any contributions to pension funds or benefits accrued between the date of the couple’s marriage and the date of their separation are subject to division. Contributions made before the marriage or after the separation are generally considered separate property that will not be divided.

Challenges in Valuing Pension Benefits

Determining the value of a pension at the time of divorce can be challenging for several reasons:

• Future benefits: Pensions are deferred benefits, meaning they are not accessible until retirement. This can make it difficult to estimate the value of future benefits.

• Life expectancy: Pension benefits are typically paid once a person retires until that person’s death. Because life expectancy is inherently uncertain, it may be difficult to estimate the number of years someone will receive pension benefits.

• Interest rates and inflation: These economic factors can significantly impact the future value of pension benefits, making it difficult to calculate their value at the time of a couple’s divorce.

Calculating the Marital Portion of a Pension

In general, the marital portion of a person’s pension benefits is divided equally between spouses. The marital portion is determined by taking the length of the couple’s marriage and dividing it by the total number of years the spouse worked while earning pension benefits.

For example, if a spouse began earning pension benefits before getting married, they were married for 10 years before getting divorced, and they ended up working a total of 40 years, the marital portion of their benefits would be calculated by dividing 10 by 40. Since the marital portion of the pension would be 25 percent, their ex-spouse would receive half of that amount, or 12.5 percent of the benefits.

Using a QDRO to Allocate Pension Benefits

A Qualified Domestic Relations Order (QDRO) is a legal order that may be used to divide different types of retirement benefits in a divorce. When allocating pension benefits, a QDRO will instruct the pension plan administrator to pay a portion of the pension benefits to the employee’s ex-spouse.

For employees of the state of Illinois, such as teachers or police officers, a Qualified Illinois Domestic Relations Order (QILDRO) must be used instead of a QDRO. A QILDRO serves the same purpose but complies with Illinois state laws governing public employee pensions.

Contact Our Oakbrook Terrace, IL Retirement Asset Division Attorneys

Pension benefits and other retirement assets are just one of many issues that will need to be considered during a divorce. At Farooqi & Husain Law Office, our DuPage County, IL property division lawyers can provide guidance on the best ways to handle these concerns. We are ready to advocate for your interests and help you make sure you will have the financial resources you need to succeed after the end of your marriage. To learn more about how we can assist with your divorce, contact us at 630-909-9114 and schedule a consultation.