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Division of retirement benefits such as pensions, profit sharing plans, or other deferred compensation plans can be extremely complicated. First, you must determine if all or any of the retirement asset is community property and then you must determine how to divide any community interest.   Retirement benefits are community property if they were earned during the marriage. This is true even if they are not collectible at the time of the divorce. Second, we must determine how to value the community’s portion. There are a number of different ways that a pension can be valued. Typically we hire an actuary to calculate the values. Finally, we must decide how to divide the community’s interest.

Division of pension plans

Like other marital assets, the parties can agree to divide the retirement accounts or buyout the other spouse’s interest for cash.

  • A Division of the retirement funds. The parties can agree to divide the actual retirement accounts. The exact method of dividing the retirement account depends upon the type of account. For traditional pension plans, the plan will have rules regarding how the plan may be divided. Common plan terms include allowing the spouses to create two separate pension accounts with the pension plan, deferring division until the employee spouse is eligible to collect on the pension, or rolling out the non-employee spouse’s share of the retirement plan to another retirement account.
  •  A present day buy-out. A second way to divide a pension plan is through a buy-out also called a cash-out. In a buy-out, an actuary determines the present value of the pension plan. Determining present value is not an exact science. The values are an estimate made using expected life span, projected rates of return on investments, and future earnings.  Once a value is agreed to the employee spouse pays the non-employee spouse cash to buy-out the non-employee spouse’s interest in the retirement asset

Should We divide Our Retirement Accounts or Agree to a Cash Buyout?

There is not a right answer to this question nor is there a one-size fit all approach. One contingency that exists in all matters is whether both spouses are agreeable to a buyout. The courts cannot force a buyout. The pension plan can but typically this only happens if the interest is less than $5,000.00.   There are a number of factors that couples should consider before reaching an agreement on pension plan division. As your mediator, Amanda Jarratt will help you and your spouse consider the pros and cons of each option so that you can reach an agreement that best fits your mutual needs.

If you are dividing retirement assets, please schedule your free call today. Your future depends on the decision you make. And you deserve to have the help of a qualified professional.




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