Retirement fund basics:
What you don’t know can hurt you

by Attorney Charma Pipersky
Partner, Divorce Helpline

Also see
Divorce and Retirement:

Frequently asked Questions

For our purposes, “retirement fund” also includes IRAs, Keoghs, 401(k)s, employee stock options and sheltered annuities as well as the traditional pension plan.

Deciding how to divide the community interest in one spouse’s pension plan or retirement fund often brings confusion to divorcing couples or — far worse — pension issues are not thought of at all and a surprising loss occurs later, when it’s too late to correct.

For example, it is common for couples to fund a property division by dividing a 401(k) fund incorrectly, only to discover later that they have an unexpected tax bill and a big penalty. Or, if you do not correctly bind the pension plan to the terms of your settlement, it is possible that the fund administrators will not protect the interests of the non-employee spouse.

It doesn’t have to be this way. A consultation with a family law attorney can clarify the variety of options available and help you decide what’s best for you. In California, call Divorce Helpline, otherwise see Who Can Help? Armed with  reliable information, you can make informed choices that fit your situation:

1.    Value. A pension fund that is anything more than a simple tax-deferred savings and investment account (like a 401(k) plan) can be worth much more than is shown on the summary statements. Before division, pension funds should be valued by a professional actuary to be sure you are working fairly with correct values. Once you have the correct value, you can consider the following options.

2.    Trade. You can trade your interest in your spouse’s pension plan for another asset of equal value. This can allow you to keep the children in the family house or leave a marriage free of debts.

3.    Divide. You can formally divide the pension fund now so that both spouses receive their share once the employee spouse reaches retirement age. This could make a welcome addition to Social Security benefits for the non-employee spouse. A few hundred more dollars per month may make all the difference in your standard of living in your “golden” years.

4.    Waiver. You can give up your interest in your spouse’s retirement plan. Do not do this unless you have had the plan valued by a professional actuary. People are often surprised at the value of their retirement benefits.

5.     Gather information. Before you decide what to do, get copies of the most recent pension fund statements, write down your date of marriage and date of separation, both spouse’s birthdates, and when the employee spouse began to be covered by the pension plan (usually, the date of joining the company). Then call Divorce Helpline for advice.