Michigan Family Law Firm Logo

Retirement & Pension Plans in Divorce

Retirement and pension plans are often hotly contested items during a divorce. Any retirement plan program, including profit sharing, pensions, 401(K)s, and thrift savings plans, is subject to the same division of property as any other asset held by the marriage.

Retirement Plans in Divorce: the General Rule

The general rule is that amounts earned through retirement plans and assets during the years of the marriage are marital assets. This rule is based on the theory that amounts paid by an employer into a retirement plan are fringe benefits with a real value to an employee.

If the amounts were not being put aside in a pension plan, they would presumably be paid directly to the employee, and both parties would benefit from the extra income. In all divorce proceedings, these monies should be considered as part of the marital assets to be divided.

Determining the Value of the Asset

The first step in considering a pension plan or retirement asset is to determine its present value.  A party’s employer may be able to provide this information, or it can be computed by an actuary. Actuaries compute the present value of a vested pension plan by factoring the specific characteristics of the plan with certain assumptions regarding retirement date, interest rates, and life expectancy of the beneficiary.

The Retirement Equity Act

Determining the present value of a pension is only the first step in dividing pension benefits, and unfortunately, cases are rarely as simple as valuing the retirement plan and dividing it equally.

For example, what if the pension benefit is valued at $100,000, while the marital home is valued at $80,000? In such a situation, the division of marital property becomes complicated. The Court could order the employee-spouse (the spouse with rights to the pension plan) to award the home to the non-employee spouse, and pay that spouse $10,000, to provide an equitable split.

However, such a situation would involve a certain amount of unfairness. Not only would the non-employee spouse get tangible assets (since our example presumes that the pension is not yet being received), but the employee spouse would be forced to make a payment of $10,000 without knowing whether he or she would actually live to receive the pension benefits.

The federal government’s response to this problem is found in the Retirement Equity Act. The Act sets forth a method of dividing the pension benefits between both parties. By means of a Qualified Domestic Relations Order (QDRO), the court can order that a specific dollar amount of pension benefits or a specific percentage of pension or retirement benefits be paid to a non-employee spouse at the time the benefits are paid to the employee spouse, or at a normal retirement age of the employee spouse.

There are many ways to vary the QDRO, depending upon the type of pension plan involved and the situations of the parties. The importance of the QDRO is its removal of much of the uncertainty in dividing a pension benefit. For example, the court can order that 50% of the pension benefit be paid to the non-employee spouse at the earliest time the employee spouse would retire with full benefits. The non-employee spouse then receives one-half (½) of the pension benefit earned up to the date of the court’s order in a separate check sent directly to him or her from the plan’s administrator at the time specified. The benefit is not dependent upon the employee’s survival to retirement age and does not get delayed if the employee spouse elects to continue working.

If one or both parties have pension plans or retirement assets to which contributions were made during the marriage, these assets may be considered marital assets. The pension can be divided by awarding the non-employee spouse other offsetting assets, or it can be divided by the use of QDRO.

Problems associated with the division of complex marital assets such as pensions and profit sharing plans illustrate the need for representation of the parties by Michigan family law attorneys who are familiar with the present state of the law in this ever increasing area of litigation.



Lansing Family Law Firm Credentials