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What happens to a pension in a divorce?

On Behalf of | Aug 3, 2023 | Divorce

Tennessee is an equitable distribution state, which means that assets are split in a fashion that the judge presiding over the divorce deems to be fair. Generally speaking, a pension is considered to be a marital asset, which means that it can be divided in a settlement. However, there are many factors that need to be considered when determining how it will be allocated after your marriage comes to an end.

How the pension is split

A pension is split per the terms of a qualified domestic relations order. Essentially, it tells the plan administrator that the withdrawal is pursuant to a divorce and that it should not trigger a taxable event. The withdrawal may happen at any time after the settlement is reached with funds being transferred from the pension itself to an IRA.

Determining the amount owed

In many cases, each spouse is entitled to half of the value of assets acquired during a marriage. Therefore, your spouse may receive half of any appreciation in that asset that takes place after your wedding date. For instance, if the pension were obtained after your marriage becomes official, your spouse would receive half of its entire value. However, let’s say that you accrued $10,000 before you were married. In such a scenario, that $10,000 would likely be exempt from any divorce settlement.

Taking a proactive approach to divorce negotiations may allow you to retain your pension or keep a larger share of it. For instance, you may keep your pension in exchange for giving up the right to equity in a home or another asset. Introducing plan documents into evidence may prove that your pension is a sole asset or that it should be partially exempt from any order issued by the judge.

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