Government Pension And Divorce

UPDATE: April 2024

Dividing Government Retirement Benefits in a Minnesota Divorce Proceedin

Pension and Divorce | When people think of dividing up property in a divorce, it’s usually bank accounts, furniture and houses that come to mind. One type of property that it’s easy to overlook in preparing for divorce is retirement benefits.

While there are a vast array of retirement benefits out there, in this post we’re specifically considering government retirement/pension benefits. Even this subcategory comes in a number of different flavors that befits what can, at times, be a vast array of bureaucracy. Remember this is the government after all! For a start, there are different federal and state employee retirement plans. These include the Federal Employee Retirement System (FERS), the Civil Service Retirement System (CSRS), the Minnesota Service Retirement System (MSRS), Teacher Retirement Account (TRA) the thrift savings plan (TSP), and the Minnesota Public Employees’ Retirement Association (PERA). In addition, there is military retired pay, railroad retirement benefits (Don’t get me started on those!), and private union sponsored plans.

When it comes to pensions and retirement accounts there is a great deal of variety! You (and really your lawyer) need to approach this in a open-minded fashion since here are a lot of different types of government retirement benefits to consider when thinking about the division of your property in a Minnesota divorce.

So, what can happen to this property as a result of a divorce? Short answer is it is divided. Annuities from a account or a specified dollar portion of the pension (called a defined benefit plan) can and will be divided between the divorcing spouses. Second, retirement benefits can be garnished for alimony or child support.

It’s important to remember the rule which is that on a 401 k plan and pensions it doesn’t matter whose name is on the account, Minnesota is a marital property state so the division is usually equal.

Valuing a Pension During A Divorce

This is actually a big deal and I’ve written a seperate post on how to value a pension! This article really deals with just how to divide it. If you want to know how a pension is actually valued, I have you covered over at the Valuing Pensions Blog post.

Understanding Qualified Domestic Relations Orders (QDROs) Like a Pro

If you’re going through a divorce, you might come across something called a Qualified Domestic Relations Order, or QDRO for short (people usually say “QUAD-ROW” or “QUADRO”). Let’s break it down simply. Think of a QDRO as a special tool that a judge uses to split up a company’s pension plan between two people who are getting divorced. A pension plan is like a big pot of money that a person gets from their job when they retire. When two people decide to go their separate ways, figuring out how to divide this pot can be tricky. There can be some big Income tax issues that come into play and that’s where the QDRO comes into play.

Now, here’s where things get a bit complicated. The rules for dividing up pension plans from private companies aren’t the same as the rules for government pension plans. Government plans include ones like the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS) or in Minnesota the Minnesota State Retirement System (MSRS) or Public Employment Retirement Association (PERA). So, if you or your spouse works for the government and has one of these pensions, using a QDRO might not work the way you think it should.

You might be tempted to find a sample QDRO form online, fill it out, and think, “Great, I’ve got this divorce thing under control.” But hold on! That’s like trying to fix a leaky faucet with duct tape. It might seem like a quick fix, but it won’t hold up under pressure. The division of government retirement benefits is a whole different ball game, and messing it up could cost you a lot in the long run.

It usually starts with the issue that pensions aren’t divided by a QDRO in the divorce process. Pensions are divided by a DRO (Domestic Relations Order). These are court orders that are signed byt the judge. It might seem like I’m being a bit prickly on that word, but it actually does matter.

This is why talking to a divorce lawyer who knows the ins and outs of dividing government pensions can be a game-changer. Yes, I’m a lawyer who works with these kinds of cases, and while it might sound like I’m just trying to get you to hire me, hear me out. The risk of losing out because of a mistake is way too high. It’s not just about losing money; it’s about making sure you’re set for the future after the divorce is final. Hiring a lawyer for this part of your divorce might seem like an extra step, but it’s one of those times when it’s really worth it to get a divorce lawyer who handles pensions on a regular basis (even if it’s not me!).

In summary, while QDROs are super helpful for splitting up private retirement plans, they’re not a one-size-fits-all solution, especially when it comes to government pensions. And while diving into the details of pension division might not be anyone’s idea of a fun time, getting it right is crucial. So, before you go filling out forms you found on the internet, consider reaching out to a lawyer who specializes in this area. It could make all the difference in ensuring your financial security down the road.

Retirement plan beneficiaries

Navigating Beneficiary Updates After Divorce: A Must-Do for Your Retirement Plans

After the dust has settled on your divorce, there’s one more important task you might not have thought about yet: updating who will receive the benefits from your retirement plans if something happens to you. This person or people are called beneficiaries, and it’s super important to make sure this information is up-to-date, especially after big life changes like a divorce.

Let’s talk about government retirement plans first, like the Federal Employees Retirement System (FERS). Here’s something that might surprise you: getting divorced doesn’t automatically change who your beneficiary is. So, if you had named your spouse as the person to get the benefits from your account and you forget to update this after your divorce, your ex could end up being the beneficiary. This means they would get the money in your account if you passed away, which is probably not what you want.

Now, switching gears to retirement plans specific to Minnesota, like the Public Employees Retirement Association (PERA), there’s a bit of good news. In Minnesota, the law has your back a bit more. If you had your spouse listed as your beneficiary and then you get divorced, the law automatically says, “Nope, they’re not your beneficiary anymore.” This is great because it prevents the awkward situation of your ex unexpectedly getting your retirement benefits.

However, and here’s where it gets a bit tricky, sometimes your divorce agreement might say you have to name your ex as the beneficiary for part of your retirement account. Since the divorce automatically kicked them off the beneficiary list for Minnesota plans, you’d have to fill out a new form to add them back on if that’s what your divorce agreement says.

You might be thinking, “Why would my divorce agreement want me to keep my ex as a beneficiary?” Well, it could be part of dividing up your assets fairly. Even though it might seem strange to name your ex as a beneficiary after you’ve gone your separate ways, it’s all about following the terms of your divorce settlement.

In simple terms, here’s the game plan after a divorce:

1. Check who your current beneficiaries are on your retirement accounts.
2. If you need to make changes, especially if you don’t want your ex to be the beneficiary, now’s the time to do it. For government plans, this means filling out a form to designate someone new.
3. If your divorce agreement says you have to name your ex as a beneficiary on certain accounts, you’ll need to fill out forms to make that happen, too, especially for Minnesota-specific plans like PERA.

Making sure your retirement plan beneficiaries are up-to-date might not be the first thing on your mind after a divorce, but it’s a crucial step to ensure your assets go to the right person or people in the future. It’s one of those administrative tasks that can give you peace of mind, knowing that your wishes will be followed, no matter what happens.