How Is a Pension Handled in a Divorce in NY?

When going through a divorce in New York, one of the most valuable marital assets, aside from real estate, is a pension. Unlike a car or a checking account, which are handled a bit differently, a pension is an asset that may have been contributed to for many years. Any type of retirement funds may cause contention in a divorce, and it's a common question divorcing spouses have as they navigate the divorce proceedings.

A New York divorce attorney can help their clients navigate this confusing process and questions such as do I have to return my wedding rings after a divorce in NY?

Pensions and Equitable Distribution in New York

New York is an equitable distribution state, which means that marital property is divided between both spouses in a fair, but not necessarily equal, manner. The court will look at a variety of factors to determine what is fair, including income, how long the spouses were married, and how much the one or both spouses contributed.

Marital property includes all assets that were acquired during the marriage. This includes retirement accounts and other marital assets. Separate property typically includes assets that are acquired before the marriage occurred, or through inheritance where one spouse was given a gift, but they did not use it as part of the marital property.

A Pension is Considered Marital Property Under Equitable Distribution Rules

A pension is considered marital property, as long as the pension was earned during the marriage. Any pension earned before the marriage or after the marriage ends is considered to be separate property.

How Is a Pension Divided in a Divorce in NY?

The main way a pension is divided in New York State is by using a specific formula, known as the Majauskas Formula. This is the standard for dealing with pensions in any New York court.

It works like this:

The marital portion = the years of service during the marriage divided by the total years of service. Then, that is multiplied by the pension benefits at retirement. Once that is established, the non-employee spouse generally receives half of that portion.

Here's an example: One spouse works at a company for 30 years, and they earned a pension. However, the employee was only married for 15 of those years. So, when using the Majauskas Formula, the marital portion would be 50% of the entire pension value because 15/30 is 0.5, or 50%. Since the non-employee spouse gets half of the marital portion, they would be awarded 25% of the total pension payments.

Types of Pensions: Defined Benefit vs. Defined Contribution

There are two main types of retirement plans, and each are handled a bit different in New York. This is very important because a pension is one of the most valuable assets a couple may have.

Traditional Pensions (Defined Benefit Plans)

A traditional pension is one where an employer promises to pay an employee a monthly benefit when they retire. This is based on the employee's salary and their years of service. In a divorce, the amount the other spouse gets is almost always decided by the Majauskas Formula, and it requires a Qualified Domestic Relations Order, or QDRO, so benefits can be distributed by the pension plan administrator.

401(k), 403 (b), Etc. (Defined Contribution Plans)

Retirement plans like a 401(k), a 403(b), or a similar plan, like an IRA, has a value that is dependent on various factors like contributions and investment performance. In most cases, these are divided by the value as of a specific date. Typically, this is the date of separation. This, too, requires a QDRO.

What Is a QDRO and Why Is It Important?

A Qualified Domestic Relations Order is a special type of court order. It allows a retirement plan administrator the ability to divide the account and distribute retirement benefits to the former spouse.

It's very important to ensure the QDRO is carefully prepared. Mistakes can be very costly and time-consuming to fix. A divorce lawyer will work with a pension expert or an actuary to ensure that the QDRO meets all financial and legal requirements. Our team can provide insight on questions like how is debt handled in a divorce in NY?

Can an Ex Spouse Waive Their Right to a Pension?

Yes, a former spouse can waive their right to pension benefits, but it must be explicitly stated in a prenup or postnup agreement, or in a divorce settlement. The courts won't assume that any of the parties involved have waived their right to benefits unless there is very clear and approved evidence.

When Can the Non-Employee Spouse Access the Pension?

In almost all cases, the non-employee spouse cannot access their share until the former spouse retires and begins taking benefits. However, this depends on the terms of the plan and the QDRO.

Some plans, like a 401(k), allows for early distribution, but there are considerations like tax implications and penalties.

Pensions from a Government or Military Job - New York Retirement Benefits

Those who work for New York State, those who are teachers in the state, or those who have a military job and have a plan like FERS have special rules to consider.

These are divisible in court just like a typical pension, but there might be restrictions or specific timelines that may chance the circumstances of the distribution. Also, there are plan-specific requirements that people need to review. At Divorce and Family Legal, LLC these family attorneys in Albany can help those entitled to these benefits further understand how they work.

What About Pensions That Haven’t Vested Yet?

Even if a pension is not vested, which is the time that the employee is legally able to receive their benefits, the pension is still considered to be marital property if earned while the employee was married.

In these cases, the other spouse cannot take their share until the pension benefits become payable.

Work with a New York Divorce Attorney to Protect Financial Interests

Dealing with the financial side of a divorce can be difficult to understand for many people. This is where a lawyer can come in and help their clients better understand what's happening. A person's financial situation can definitely influence a divorce, and an attorney should always be used to navigate this confusing time. The team at Divorce and Family Legal, LLC can work with those who are considering a divorce or currently going through a divorce. Call now for an appointment.