By Collaborative Practice California Board Member and Financial Specialist Beth McClelland, MBA, CDFA, CFP®

Dividing Pensions Is Not Necessarily Easy

It is wonderful to have a pension as part of the marital assets.  It’s very easy to think, “OK, we will split the marital portion of the pension in half, have someone create a Qualified Domestic Relations Order (QDRO) and go along our merry way.” Sounds good, but maybe not so easy. Your collaborative team will want to fully understand your pension before the plan to divide it and the QDRO is developed. QDRO’s require precise detailed legal language specific to the pension you are dividing. And they don’t happen automagically!

Hire a Collaborative Financial Specialist to Read the Pension Documents’ Fine Print

To start, it is not very exciting reading, but someone needs to read the pension documents and evaluate what is and is not possible. That probably should not be you, and probably not your attorney either. A Certified Divorce Financial Analyst (CDFA) financial neutral is a good option for this role. Besides being neutral in negotiating a pension division, a CDFA receives training in identifying pension related issues. Better yet, they can explain how they work, including the various options relevant to dividing pensions in your situation.

Reading the pension document’s fine print can determine IF the pension is even divisible. That fine print will also describe what happens when the pensioner or ex-spouse passes away. Will the pension still pay the surviving party? And what about heirs? Another variable of the pension can be what happens if the pensioner gets remarried. Knowledge is power in making sure the settlement provides provisions to address future pitfalls.

I recently worked with a client who very wisely began asking a lot of questions about the pension she would be receiving payments from. We called the pension office together to review the language of the Marital Settlement Agreement (MSA) and draft QDRO to find out what would happen when her ex-spouse passed away. We determined the language needed modification to prevent her pension payments from ending on his death. That would have been a very unpleasant and serious future surprise.

As a CDFA, I was able to help her project her future income streams. We looked at the various options to smooth out her income throughout the remainder of her life. To do this we looked at the pension options, her social security income, the social security income she might receive from her spouse, and other income sources. As a result, she now has peace in understanding her future pension benefits.