Alimony From Beyond The Grave: The Relationship Between Pension Survivor Benefits And Divorce
Most couples think that once an agreement is reached the divorce decree is final there will be no future complications regarding property settlement but that’s not always true. If one of the parties dies and has a pension, the ex-spouse might be entitled to compensation as part of the pension’s survivor benefit. This potential future payout should be considered as part of the property division decreed by the divorce financial settlement.
To clarify, we aren’t talking about all retirement assets. If you have an IRA, 403b or 401k plan, known as defined contribution plans, then there is a concrete sum of money that can be divided like any other asset at the time of divorce. The complication occurs when the retirement plan is a pension, also called a defined benefit plan. In this case there is no lump of money to be divided. Instead there is a promise of monthly payments based on factors like salary at retirement and years of service. These can be divided between the spouses either as a lump sum, where the employee buys out the ex-spouse’s interest in the pension, or as a split payment, where the monthly pension benefits are split between the two parties after the employee retires.
Pensions offer survivor benefits that pay either a lump sum or monthly payments to a defined beneficiary, usually a spouse, if the employee dies either before or after retirement. When determining the impact this has on the property settlement of a New York state uncontested divorce it’s important to realize that the survivor benefit is not the pension. It is more like a life insurance policy on the survivor’s interest in the pension and, as such, it costs money to maintain.
If the couple wishes to immediately distribute the spouse’s interest in the pension as part of the property division, the value of the asset can be determined with a divorce settlement calculator. If they prefer a deferred arrangement, either by having the employee buy out the spouse’s interest over time or by splitting the payments after retirement, then the spouse’s interest must be protected by keeping the survivor benefit payments current.
The divorce settlement should confirm that the spouse is entitled to pension benefits and should require that the spouse’s interest be protected. The decree should specify who is responsible for the survivor benefit premium payments: the employee, the spouse or both. Should the employee die either before or after retirement, the ex-spouse’s pension interest will still be valid and payments will be received.
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