Dividing Pensions in Divorce
Although the popularity of pensions has been declining in recent years, many employees still rely on pensions or ”defined benefit” plans as their primary source of retirement income. In a defined benefit plan, the employee pays into a fund during their working years and receives a fixed monthly income at retirement, based on the number of years worked and various other factors. This is in contrast to defined contribution plans, such as IRAs and 401(k) plans, where the employee contributes a specific amount every month which is invested over time.
Pension plans or defined benefit plans include the following:
Arizona State Retirement System (ASRS)
Public Safety Personnel Retirement System (PSPRS)
Intel Minimum Pension Plan
Railroad Retirement Annuities
City of Phoenix Employee Retirement System (COPERS)
Some forms of military retirement pay
In Arizona, the non-employee spouse may have an interest in the employee spouse’s pension if the employee contributed to the pension during the marriage.
What am I entitled to?
The non-employee spouse is entitled to one-half of the community interest in the pension plan. In Arizona, the community interest is the portion of the monthly pension payment that was earned between the date of marriage and the date of service of the divorce petition. If Sam and Jane were married for 30 years, and Jane works for Acme Corporation for 20 of those years, Sam would be entitled to one-half of Jane’s Acme pension.
In many cases, the employee spouse was contributing to a pension for several years prior to marriage. If Jane works for Acme for 10 years prior to marriage and 10 years during the marriage (20 years total), 50% of the Acmepension payment would be community property and 50% would be Jane’s separate property. Jane would be entitled to all of the separation portion and half of the community portion, or 75% of the total monthly pension payment. Sam would be entitled to half of the community portion, or 25% of the monthly payment.
The same logic applies if the employee spouse continues working after the divorce. If Jane works for Acme for 10 years during the marriage and continues working for 20 years after the divorce (30 years total), the community portion would be one-third of the total monthly payment. Sam would be entitled to half of the community portion, or one-sixth of the monthly payment.
When do I start receiving payments?
Pension payments to the non-employee spouse typically begin when the employee spouse retires, but it can vary greatly from plan to plan. It also depends on the retirement status of the employee at the time of the divorce — are they still working or have they already retired? In some cases, the non-employee spouse can only begin receiving benefits when the employee spouse decides to retire.
Dividing pensions in a divorce can be complicated, and will usually require the assistance of an attorney. To divide a pension, a special type of order called a Qualified Domestic Relations Order (QDRO) or Domestic Relations Order (DRO) must be approved by the court and submitted to the plan. It is important that these orders are prepared simultaneously or immediately following a divorce to secure the interest of the non-employee spouse.
Pension plans often include survivorship benefits if the employee spouse predeceases the non-employee spouse. In most cases, survivorship benefits must be secured at the time of the divorce and could be waived forever if the order is not properly prepared.
Schedule a consultation
Dividing retirement plans in a divorce can be complicated and is often time-sensitive. If you are considering divorce and need advice on dividing an employee pension, please contact our office to speak with a Chandler family lawyer.