A pension plan is a tax deferred savings plan. Typically, during years of employment, monetary contributions are made by the employee and/or on behalf of the employee by the employer to a retirement plan. The contributions and the earnings generated accumulate over time, tax free, until retirement. Upon retirement, the employee will receive a specific monthly income for life or a lump sum payment. There are two general types of retirement plans: the Defined Benefit Plan and Defined Contribution Plan.
- Introduction to Pensions and Divorce: For many divorced women, the so-called golden years of retirement can become a long journey across the rocky terrain of financial hardship, if not poverty.
- Pensions Are Marital Property: The pensions of both spouses earned during the marriage are marital property and are subject to division and distribution in divorce.
- Defined Benefit or Defined Contribution: Pension and retirement plans come in a bewildering array, with many diverse provisions; however, the two basic models are: the defined benefit or defined contribution.
- The Basics of Defined Contribution Plans: This is a private tax deferred savings plan set up by a company or individual that will provide an income to a participant upon retirement.
- The Basics of Defined Benefit Plans: This is a plan set up by a company, union, or individual that provides a participant with a monthly income for life upon retirement.
- Valuation Must Be Calculated: At some point, a valuation date must be established as part of the divorce process for both a defined benefit and a defined contribution pension plans.
- Common Asked Questions that Affect Valuations: A question and answer format reviewing a hypothetical scenario of the valuation of a pension in the dividing of assets due to separation or divorce.
- Appraisal Methods: A discussion of the different appraisal methods used by professionals to determine the present value of a pension.
- The Basics of QDROs and DROs: According to the Employee Retirement Income Security Act of 1974 (ERISA) a Qualified Domestic Relations Order (QDRO) is a judgment, decree or order that creates or recognizes the existence of an alternate payee's right to receive all or a portion of a plan participant's benefits under an ERISA-qualified employee benefit plan.
- Qualified Domestic Relations Order (QDRO): The QDRO is a court order to a retirement plan administrator defining how two particular parties - the former spouses - are to receive the plan's benefits.
- ERISA (Defined Contribution Plan): Any Thrift Savings Plan, Profit Sharing Plan, Employee Stock Ownership Plan sponsored by a company.
- ERISA (Defined Benefit Plan): This is a plan set up by a company, union, or individual that provides a participant with a monthly income for life upon retirement.
- Civil Service Retirement System: Government employees are members of either the Civil Service Retirement System (CSRS) or the Federal Employee's Retirement System (FERS).
- Federal Employees Retirement System: Government employees are members of either the Civil Service Retirement System (CSRS) or the Federal Employee's Retirement System (FERS).
- United States Military: The Military Retirement System provides benefits to members of the uniformed forces.
- State/Local Governments and Teachers: These plans apply to employees of the state and local governments or public school teachers throughout the country.
- Mistakes Lawyers Often Make: Many woman are not well served by their lawyers, who not are well grounded in the subtleties of the Employee Retirement Income Security Act (ERISA), which is the federal law covering private pensions, and the Retirement Equity Act, which broadened the rights of divorced spouses, or even the particular pension plan of a divorce case.
- Pension Strategies for Divorce: More than twice as many men as woman have retirement benefits, and the benefits for men are generally much larger than those for woman, as was described above.
|Pension Issues in Divorce
When couples get divorced they must decide how to divide their property. Retirement benefits (pensions) often form a substantial part of the parties' total marital estate and many times are the largest single marital asset afforded the couple. Similar to other assets, pensions are typically divisible in cases of divorce to the extent that they are acquired during the period of marriage.
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