Divorce can be one of the hardest and ugliest things to deal with in your life. The emotional and familial turmoil that typically comes with this process is often exacerbated by financial issues and the battle over division of assets, which range from real estate and physical property, as well as money and investments.

Retirement plans and pensions are often key assets that are targeted by both spouses, especially when a nonworking spouse is left without any kind of savings if he or she is unable to get anything from the former partner. But what can you do to protect your assets? Here’s what you can do to make sure your retirement savings or rights to benefits aren't lost if you face this unfortunate dilemma.

Key Takeaways

  • Retirement plans and pensions are often key assets that are targeted by both spouses, so you need to make sure you protect your nest egg.
  • Come to an agreement with your spouse, but know the rules that govern your retirement assets.
  • Debts taken out against retirement accounts count as a 50-50 liability.
  • Communicate with your account custodians, make sure you're listed as a survivor, and create a prenuptial agreement.

The Decree

The first, and most obvious, thing you need to do is have a plan ahead of time. No one wants to admit the inevitable could happen. But let's be realistic—nothing lasts forever, and sometimes, that includes relationships. And it never hurts to keep the communication going between you and your spouse, even if it's about a topic you don't necessarily want to address.

Make sure you both decide how your assets will be split up in case you do end your relationship and file for divorce. A decree can do this for you. This includes any and all assets related to your retirement. Of course, there is a chance that the agreement may not hold up when things get rough. To make sure things remain amicable, get a professional—financial and/or legal—to make sure your agreement remains in tact.

Know the Rules

The first step in protecting your retirement assets is to know the rules that govern your plans, accounts, and pension payments. Most plans and accounts have specific procedures that must be followed when it comes to dividing retirement assets. Failure to follow these instructions may lead to forfeiture of some or all of those assets — even if they were accorded to you in the divorce decree.

For example, the Thrift Savings Plan—a defined-contribution plan for federal employees and members of the uniformed services—requires that the division of plan's assets be clearly spelled out and referred to as the TSP balance directly in the divorce decree. A verbal agreement between the parting spouses will not suffice to process a rollover under the Qualified Domestic Relations Order (QDRO) rules. The decree itself must say something to the effect of “the spouse is entitled to X percent of the participant’s TSP balance” somewhere in the document or in one of its appendices. If it does not, the spouse of the participant receives nothing, regardless of any other agreement that was made.

Don't Forget the Debts

Any debt that is owed inside a retirement plan also usually is considered to be a joint obligation. For example, if the participant spouse took out a $50,000 loan from his $200,000 401(k) plan, then a 50-50 split may be calculated on the remaining balance in the plan, unless the divorce decree specifically states that the loan must be repaid before the division.

Pension Plans

The division of individual retirement accounts (IRAs) and defined contribution plans is usually a relatively straightforward process. Either the divorce decree itself or a QDRO is used to move account balances from one spouse to the other as a rollover. Dividing guaranteed pension payouts can be another matter in many cases.

Although both types of retirement funds must usually be divvied up at the time of divorce by some form of court order, there are several key factors that enter into how monthly benefits are allocated between spouses. Any pension that was earned while the divorcing spouses were married is typically considered to be joint property in most states and is subject to some form of division in a divorce. That said, there are several ways that this current or future payout can be divided.

Most pensions offer some form of survivor benefit and, in some cases, the ex-nonworking spouse may simply opt to retain this benefit. In other cases, the actual monthly benefit is divided between the spouses and the survivor benefit may be waived, retained, or transferred depending upon the divorce decree. In some cases, the nonworking spouse may come out ahead by waiving the survivor benefit and having the other spouse purchase a life insurance policy naming him or her as a beneficiary. This can be especially prudent if the survivor benefit will stop if the nonworking spouse remarries before a certain age.

For example, the pension that is paid to a retired member of the U.S. military has a survivor benefit that will cease if the spouse of the deceased service member remarries before age 55. Therefore, a spouse who divorces a service member receiving a pension should run the numbers to compare a life insurance death benefit against what they will receive from the survivor benefit plan if they remarry before age 55. (For related reading, see: Say 'I Do' to Financial Compatibility.)

What You Need to Do

If you get divorced or are seriously considering it, now is the time to get your ducks in a row about how your retirement assets will be divided up. The following steps can help to ensure that you either get or retain your fair share of retirement plan assets during the divorce proceedings.

Do Your Homework

As mentioned above, those who understand the general rules of how plans are divided are better prepared to assess whether they get or retain what they should. If the divorce decree states that a plan or account is to be split evenly, then a rollover order for the entire amount is obviously not correct. Nonparticipant or nonowner spouses have the right to obtain complete information about all retirement plan or account balances that are owned by the other spouse and should be able to get current statements on all assets, retirement or otherwise that are eligible for division.

You also need to be aware that many rules and laws pertaining to the division of pension and retirement assets vary from one state to another, so be sure to find out what rules apply in your state and locality. 

The rules pertaining to the division of pension and retirement assets vary from state to state.

Get Professional Representation

This is important, as we already mentioned above. Even if dividing the rest of your marital assets seems relatively straightforward, it is probably wise to at least consult a pension lawyer in order to review the division of retirement assets. Divorcing spouses who are uneducated in this matter can both lose in some cases due to simple ignorance of how pensions work and which payout options may be the best for both parties even when they are divided.

Communication Is Key

Send all court orders and divorce agreement documents to plan and account custodians immediately. If you delay too long in doing this, you may forfeit what is due to you because your paperwork is outdated and invalid. Although private pension plans are required under the Pension Protection Act of 2006 to accept any court order regardless of when it was issued, it is still critical to submit this paperwork before any of the assets in the plan or pension are distributed. If you don’t, you may be faced with the prospect of trying to recover those assets yourself, which can incur further legal fees and bureaucratic wrangling.

Here's another consideration. If your soon-to-be ex-spouse has serious health issues or is terminally ill, be sure to get your legal documents to plan custodians sooner rather than later. Settling the affairs of a deceased ex-spouse who died before this paperwork was submitted can be a real nightmare.

Review Social Security Benefits

If you were married to your ex for at least 10 years, you may be eligible to get a portion of his or her Social Security benefits. Visit the Social Security website for what you will need to do to collect. If you are entitled to your own benefits as well, you are usually allowed to receive the larger of either your benefit or your share of your ex-spouse’s payments.


Be sure you are specified as the survivor. If your ex gets a pension that you are dividing, make certain that you are listed as the survivor or beneficiary on the plan if you intend to continue collecting benefits after he or she is gone. Find out what forms you need to sign and keep copies of them in a safe place for future reference.

Create a Prenuptial Agreement

This may be the most straightforward way to protect your retirement assets and interests if you split up. Just be sure to include plans for how pensions and other assets can be divided, and perhaps leave some room for certain adjustments that could benefit you both depending upon your circumstances at the time of divorce.

The Bottom Line

Divorce is never a fun process, but knowing the rules and anticipating the impact of retirement plan division and pension payouts can make things a great deal easier for both parties. If you have questions about what you need to be doing to make sure your assets are distributed correctly, visit the Pension Rights Center website or consult your financial advisor.