Long-Term Government Employee? What Happens To Your Pension During Divorce?

If you've spent your career working for the federal, state, city, or county government, you have likely vested in a valuable government pension that will continue to pay you a weekly or monthly income from your retirement until your death. For many long-term government employees, this pension can represent the bulk of all retirement assets. But what will happen to your pension if you file for divorce? Must you divide it with your ex-spouse, or are you permitted to keep it out of the pool of marital assets? Read on to learn more about how pensions are treated during a divorce.

Is a pension a marital asset? 

The most important question to ask is whether your pension is even considered a marital asset. Most states (even community property states) will exempt certain assets from the marital pool -- including inheritances, medical settlements, and other assets meant to pass to one spouse specifically. 

However, community property and non-community property states alike consider retirement assets earned during a marriage as part of the marital pool. This means that any portion of your pension earned during your marriage may be fair game for division between you and your ex-spouse.

This distinction can get tricky if you vested in the pension before marrying. In this situation, you would likely only be responsible for dividing with your ex-spouse the difference between the amount you would have received at the beginning of your marriage and the amount you would have received at the end of your marriage. 

For example, if your estimated monthly pension income at the time you married was $2,000, and over the course of your marriage, your years of service and pension contributions increased this amount to $4,000, you may be responsible for providing your ex-spouse with assets sufficient to generate $1,000 per month in income (or half the amount your pension increased during your marriage).

How will your pension be valued?

In many cases, you or your divorce attorney may need to hire a forensic accountant to perform an accurate valuation on both the current value of the pension, and the amount of pension assets that may need to be divided. This valuation may take into account the life expectancy of you and your ex-spouse, the amount of monthly income you're projected to receive, and whether you're eligible to cash out the pension in favor of an annuity or other lump sum.

What if your pension is the only substantial marital asset?

One particularly tough situation is when one partner has a valuable pension that is considered a marital assets, but the other assets are insufficient for that partner to "buy out" the other partner's share of the pension. However, there are a couple of ways you may be able to work around this.

Many pensions that offer a survivor option will allow you to name a non-spouse as the survivor. This means that if you pass away before your ex-spouse, your ex-spouse may still be able to receive a reduced portion of your pension. 

In many cases when the pension is the only significant marital asset and cannot be liquidated, the most equitable division of assets is a mere requirement that you name your ex-spouse as a survivor, and elect this survivor option when you begin collecting your pension. Although this will likely reduce the total amount of pension earnings you'll receive had you not elected the survivor option, it does help even the playing field and help compensate your ex-spouse with a share of the marital assets.

Another option may be your spouse's collection of your Social Security award. If you've been married 10 years or longer, your ex-spouse may be able to collect on your Social Security retirement benefits (without reducing the benefits you receive). Your ex-spouse will be permitted to collect your benefits as long as a) he or she does not remarry; and b) the benefits he or she could collect on your record are higher than the benefits he or she could collect on his or her own record. 

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