Dividing Retirement Funds and Pensions in Divorce

The main reason pension distribution in divorce is complicated is because there are about as many different pension plans as there are employers and unions.

Within certain limitations imposed by law, employers or unions may create a pension plan with whatever features they like. It is difficult for anyone to keep track of all the thousands of pension plans that exist and the many different features in each plan that need to be considered when parties divorce.

“Defined benefit” retirement plans are pension plans that pay a specific amount of money each month for the life of the former employee beginning at retirement. The Washington appellate courts have held that the community portion of the benefit paid at retirement is a fraction in which the numerator is the number of months the benefit was accumulated between the wedding date and the date of separation, and the denominator is the total number of months over which the retirement plan was accumulated. Usually in divorce, the unemployed spouse receives a portion of the monthly retirement benefit equal to half the community portion of the benefit.

In 1986 Congress created another type of retirement plan referred to as a 401(k) or “defined contribution” plan. In this type of plan, both the employer and the employee deposit tax-deferred funds into an account, and a plan administrator invests them until they are periodically withdrawn during the employee’s retirement. In divorce cases, the Washington court usually concludes that the community portion of the account equals the amount of employer and employee funds deposited into the account between the wedding date and date of separation, together with the investment gains and losses on that amount. The divorce decree usually awards each spouse half the community portion of the account.