In 2018 alone, over 21,000 divorces took place in Virginia, according to the Virginia Department of Health, Division of Health Statistics. With the prevalence of divorce comes the challenge of dividing up retirement assets among divorcing spouses.
You have worked hard for your pension, but you are now facing a divorce. You may be considering whether your pension or your spouse’s pension is considered separate or marital property. How do Virginia courts divide up retirement accounts such as Thrift Savings Plans, defined benefit plans (pensions), 401(k)s and IRA accounts?
In Virginia, Courts can divide all marital property at the time of the divorce. Marital property generally means all property acquired by either party from the date of marriage until the date of divorce. It does not matter how that property is titled or who earned it, if it was earned during the marriage, it’s marital property.
This applies to all forms of property, from bank accounts, investment accounts, retirement assets, real property, personal property etc. There are a few exceptions to this, mainly property that is inherited or received as gift from a third party during the marriage will be recipient’s separate property. Parties can also change how property would be handled in the event of a divorce by signing a Premarital or Postnuptial Agreement.
Once a Virginia court determines that your pension is marital property, a judge has the authority to divide the pension accordingly. If a court determines that your pension is separate property (i.e. you earned your entire pension prior to the marriage), it will not divide the pension between you and your spouse. Instead, you will keep the entirety of your pension.
In many cases, pensions have both a separate component that was earned prior to the marriage and a marital component that was earned during the marriage. This scenario is not uncommon and in this situation, the pension is referred to as ‘hybrid’ property meaning it has both marital and separate property interests.
When dividing a hybrid pension, the Court will determine, based on the evidence you and your attorney provide, what portion of your pension was earned during your marriage. That portion is commonly referred to as the ‘marital share.’ The Court will only divide the marital share and in doing so, assuming sufficient evidence was shown, will leave your separate interest alone. This approach applies to pensions as well as contributions to individual retirement accounts.
For example, if a marriage lasted 20 years and one spouse had been contributing to her pension for 10 years prior to the marriage, the marital share would be 66% or 2/3rds as the first 10 years would be the spouse’s separate property and will not be divided. However, a court may divide the 20 years’ worth of contributions (i.e. ‘marital share’) made during the marriage between the spouses.
While there is no set percentage as to how courts will divide marital share, Virginia law does not allow a non-employee spouse to receive more than 50 percent of the portion of the pension that was earned during the marriage. Following the same example above, in that scenario the Court could not award the non-employee spouse more than 50% of the portion that was earned during the marriage (1/2 of 66%) or 33%.
It is important to note that spouses can mutually agree to any type of division of retirement assets in their divorce settlement.
Valuing pension can be very complicated. To do it successfully, a party would need to hire a pension valuation expert or actuary to calculate the present value of the pension and then divide it. The reason it is so complicated is because you have to value a future stream of income (i.e. monthly payments) and make it into a current value/onetime payment. If you decide to go that route, the Court can incorporate the current value of the pension into the division of marital assets.
In most cases, parties divide their interests in the pension and apply an ‘if, as and when’ payment arrangement. This means that there will be no payment or transfer at the time of the divorce if the employee spouse is still working and earning his or her pension, but instead at the time of retirement the non-employee spouse will receive their share at the same time as the employee spouse receives theirs.
Even in situations where actual retirement will be many years down the road, at the time of divorce, a Court order should be prepared and sent to the plan administrator so that when the employee spouse decides to retire, the plan administrator will be on notice of the non-employee spouse’s claim, and be ready to process it and send payment to the non-employee spouse. This method of dividing interest in the pension and having payment commence upon the retirement of the employee spouse is more common than the pension valuation approach. If an employee is already in pay status, the payments to the non-employee spouse would typically commence upon the divorce.
As with all issues in a divorce, if the spouses do not agree on how to value and divide a pension for purposes of the divorce, a court will decide.
The division of retirement plans can be one of the more difficult aspects of divorce. Let us advocate for your interests when dividing up your or your spouse’s retirement plans. Please contact our law firm today for a confidential consultation. We have offices in Fairfax, Arlington, and Manassas, and we are able to assist you immediately.
Since 1975, ShounBach has served the Northern Virginia community. Our team brings over 200 years of combined legal experience and has grown to be one of Virginia’s largest family and estate law firms.