Dividing Pensions and Retirement Accounts in Divorce

A pension or retirement account can be a major asset in a divorce. In both Oregon and Washington, both spouses will often receive a share of each other’s pensions and retirement accounts unless they agree otherwise. How to calculate this share, however, can be a little complicated.

Pensions are often set up as “defined benefit” plans, in which the value is based primarily on the duration of employment. In Oregon, the law has long held that the portion of the plan that is considered acquired during the marriage is determined by simply applying the ratio of the time the parties were married to the time of employment:

Length of Marriage / Length of Employment x Value of Pension = Marital Portion

In Oregon, the law presumes that both spouses contributed to the marital portion, the same as other property acquired during the marriage. As a result, the courts usually (but not always) divide the marital portion 50-50. A recent case in the Oregon Court of Appeals applied this rule to a Navy pension, telling the trial court to apply the “time rule” ratio and ruling that limiting the other spouse’s share to seven years was improper. Washington courts usually reach a similar result through application of Washington’s community property law.

401(k)s and other retirement accounts work differently. The value of these accounts vary based on the amount of contribution by both the employer and the employee. As a result, the time rule doesn’t give an accurate calculation of the balance. Instead, an accountant will usually have to be retained to review the contribution records and calculate how much of the account is traced to contributions during the marriage. This does mean that some expense may be involved, but in cases with reasonably sized accounts, the return is likely to be worth it. Once the marital portion is found, the distribution will usually proceed the same way.

Often, spouses in a divorce will try to avoid the expense of a calculation, and the cost of having a special order prepared to make the transfer nontaxable, by simply looking and the value of the pension or retirement account, giving it to the spouse in whose name it is, and assigning some other asset to the other spouse to balance the total. This has the added advantage of speeding the economic separation of the spouses. More often than not, my clients have done this.

If there are retirement accounts involved in your divorce, and you have a lawyer, it is a good idea to make sure the lawyer knows at the beginning, when you compile a list of property. That way, you can decide on a negotiation strategy as early as possible.

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