Dividing Retirement Benefits During a Divorce

 Posted on August 01, 2016 in Property Division

For many divorcing couples, retirement plans are one of the largest assets they have. Pensions and defined contribution retirement plans are generally subject to division during the divorce. That means that if a couple is married when benefits accrue, then the benefits should be considered in the division of property even if it will be awhile before the benefits are actually paid. This is one of the most complex subjects in asset division. For specific answers for your situation, contact a knowledgeable property division attorney.

General Rule

The Illinois Marriage and Dissolution of Marriage Act governs property division during divorce. Courts require that assets be split equitably, which does not necessarily mean equally. Generally, the benefits earned during the marriage are split between the couple. However, with some plans, especially pension plans, this can be a more difficult calculation than it may seem.

Defined Contribution Plans

Defined contribution plans, like 401ks or other plans where a certain amount of money is put in each period, are generally split in half for the duration of the marriage. For example, let’s say a spouse has a 401k plan with no employer matching, that they have contributed to for 10 years, with $100 each year, for a total of $1000. If they have been married for five years, then half of the amount ($500) is subject to equitable division, so their ex will likely be awarded one-quarter ($250) of the value of the plan (not counting interest, which complicates matters much more). Valuation experts are often consulted when retirement benefits are hard to quantify.

Defined Benefit Plans

Defined benefit plans include pension plans and other plans where a certain amount is paid out to the beneficiary during retirement and for an unspecified period of time. Defined benefit plans can be even harder to quantify and there are two different formulas that spouses (and their attorneys) may want to use to divide the benefit.

The first formula is the date of divorce formula. This stops the clock on the pension benefits at the date of divorce and divides that benefit between the spouses. For example, if one spouse started a job after the beginning of the marriage, and has been working there for 20 years and the current benefit is $1,000 a month if they retired right now, then each spouse could arguably be entitled to $500 a month.

However, using the “Hunt” formula, the marital portion is a fraction with the number of months married as the numerator and the total number of months benefits accumulate as the denomination. For example, if the marriage lasts 20 years (240 months) and one spouse retires after working 30 years (360 months), the marital portion of the total benefit is 240/360 or 2/3. If the monthly benefit is $1500, then the marital portion is 2/3 of $1500, or $1000. Once again that $1000 is then divided by two for each spouse, making the monthly benefit $500 for the divorcing nonworking spouse.

(Though in these examples the end result is the same, generally the Hunt formula is more beneficial for the non-working spouse).

DuPage County Property Division Attorneys

If you are thinking about divorce and have questions or need assistance with property division, you should contact a skilled property division attorney. Our dedicated DuPage County property division attorneys at Davi Law Group, LLC can help you figure out what you are entitled to in your divorce.

Source:

http://www.ilga.gov/legislation/ilcs/ilcs4.asp?ActID=2086&ChapterID=59&SeqStart=6000000&SeqEnd=8300000