Pensions and Retirement Funds in a Divorce
What happens to pensions in a divorce?
In most divorces where one or both of the spouses has pension or retirement benefits, there is no money to divide yet because the spouses have not reached retirement age. But pensions are marital property, and the money becomes real when the employee starts receiving the benefits.
Usually, the spouses fill out a QDRO (Qualified Domestic Relations Order), which transfers the appropriate share of benefits to a separate fund for each spouse. That way each spouse would pay only the taxes or penalties for his/her own share of the benefits. (When pensions are paid out, they are taxable. And if the funds are taken out early, there will be a penalty.)
There are many different kinds of pensions, including private, state, and military. Each has different rules about how to divide the asset in a divorce. It can be very complicated. Talk to a lawyer or a tax professional if you or your spouse has a pension or may have the right to military retirement benefits.
Reviewed August 2009