RetirementMay 1, 20210 comments

Pension and Divorce in Virginia

There are several reasons that a marriage might end in divorce. If you have worked hard for a pension, you may be wondering how divorce will affect it. Let’s look at how Virginia handles pension and divorce.

Retirement Accounts as Marital Property

In Virginia, the courts can divide marital property at the time of a divorce. While this generally means all property acquired by either party from the date of marriage until the date of separation, there are a few exceptions.

All forms of property, such as bank accounts, investment accounts, retirement assets, real property, personal property, etc. are considered marital property if that property was acquired during the marriage. If property is inherited or received as a gift from a third party during the marriage, it will be the recipient’s separate property. Furthermore, a Premarital or Postnuptial Agreement could change how property is handled during a divorce.

When it comes to your pension, a judge has the authority to divide the pension accordingly, once the Virginia court determines that is marital property. If the court determines that your pension is separate property, it will not be divided. Instead, you will keep the entirety.

[Related: Choosing a Divorce Lawyer]

Hybrid Property

Often, pensions have both separate (earned prior to the marriage or after the separation) and marital (earned during the marriage) components. This situation is referred to as “hybrid” property. In these cases, the court will determine what portion of your pension was earned during marriage. This is known as the marital share, and it will be divided accordingly. If sufficient evidence is shown, your separate share will not be divided. This is true for contributions to individual retirement accounts and 401(k) plans as well.

Dividing Marital Shares

There is no set percentage for how courts will divide a marital share of pensions. However, Virginia law does not allow a non-employee spouse to receive more than 50% of the portion of the pension earned during the marriage. It is worth noting that spouses can mutually agree to any type of division of retirement assets in a divorce settlement. This can be beneficial to both parties.

[Related: Divorce Mediator]

Calculating Pension Plan Value

There are two ways that a pension can be divided. One method is to calculate the value of a pension plan, which would require the services of a pension valuation expert or actuary. This person would determine the present value of the pension and divide it accordingly. It is a delicate and complex process because you must value a future stream of income and convert it into a current value or one-time payment.

Then, the court can incorporate the current value of the pension into the division of marital assets. In the more common approach, parties divide their interests in the pension and apply an “if, as and when” payment agreement.

Meaning there will be no payment or transfer at the time of the divorce if the employee spouse is still working and earning his/her pension. Instead, the non-employee spouse will receive his or her share at the same time as the employee spouse at the time of retirement.

In any case, a court order should be prepared and sent to the plan administrator so that when the employee spouse retires, the plan administrator is on notice of the non-employee spouse’s claim. It can then be processed, and payments can be sent to the non-employee spouse. If the employee is already in pay status, payments to the non-employee spouse begin upon divorce.