Janene Baedke, Extension Educator; Sharon M. Danes and Jean W. Bauer, Extension Specialists and Professors — Family Social Science; Kathleen Lovett, Extension Educator; Kathryn D. Retting, Professor — Family Social Science; and Patricia Stumme, Extension Educator
Retirement plans can be complicated and confusing, but you can’t afford to skip over this issue during the divorce or separation process. Securing assets for your future allows you to concentrate on the security of your children now.
Having a retirement plan is like owning a car — you don’t really own your car until you pay off the loan. Similarly, your employer owns the retirement plan until you retire. It's an asset that needs to be divided in divorce, especially if you have been married 10 years or longer. These days most people have had more than one employer during their work lives, so be certain to identify all retirement plans held during your marriage, not just the current ones.
Familiarize yourself with the terms you are likely to hear when you investigate your retirement plans. The Retirement Benefits Summary (PDF) worksheet will help you track your own and the other parent's retirement assets. Retirement plans get valued as of the separation date.
If you are self-employed or an employee covered by a retirement plan, you are called the plan participant. When you were married, your spouse was called the alternate payee. Your child or other person chosen by the plan participant might also be the alternate payee. Vesting means that you are entitled to the retirement benefits your employer has contributed to the plan for you.
Although retirement benefits are often years away from being paid out, you nevertheless want to compare all assets during your divorce process. Address the distribution of retirement benefits now, rather than when you are ready to receive benefits.
A present division means you divide the value of the plan as of the divorce decree. A future division means the plan is divided at retirement. This will affect your future financial security, so give some thought to this decision.
Some things to keep in mind:
- Retirement plans are property to divide during the divorce process.
- You don’t "own" your retirement plans.
- Retirement plans are not created equal. Some plans promise better tax breaks than others.
Questions to ask when dividing retirement plans:
- What types of retirement plans do you and the other parent have?
- Who is the plan participant or owner?
- What is the value of your retirement plan as recognized by the court?
- What is the actual value of your retirement plan after taxes, early withdrawals, surrender charges, and other assessments?
- How will you and the other parent divide your plans?
Use the Retirement Benefits Summary (PDF) worksheet as a guide to gather initial information about retirement plans for both you and the other parent. This initial information will eventually be used in a Qualified Domestic Relations Order (QDRO). A QDRO is a type of court order that directs a retirement plan administrator to disperse benefits based on the terms of the divorce agreement. There may be other types of retirement plans that are not mentioned in this worksheet.For clarification of retirement terms and further details of retirement plans or financial products within retirement plans, consult the University of Minnesota Extension publication, Planning Ahead for Retirement.
Cooperative Extension System. (2010). Financial security: Retirement planning.
Danes, S. M. (2009). Planning ahead for retirement. St. Paul, MN: University of Minnesota Extension.
United States Department of Labor. (n.d). Qualified domestic relations orders.
Planning Ahead for Retirement — Guides you in developing a retirement plan that takes into account the financial, emotional, and social aspects of your life.
Invest NOW: Money in Retirement Online Course — Online course that will give you the basic education you need to start investing for your future.