What Is Pension Sharing?

Pension sharing is about making the best of a difficult situation. When divorce occurs, the division of financial assets, marital property, and retirement benefits can be a complex and lengthy process. For divorced couples, pension sharing is a guideline that gives some structure to the division of retirement benefits, including the designated beneficiary and the ex-spouse. The way that pension benefits are shared depends largely on the the type and size of retirement benefits, as well as the financial state of the pension holder.

Often, pension sharing is sought out as a solution during a divorce. It is very possible that both parties to a divorce can receive retirement benefits and still be able to proceed with independent lives. The rules and structure of a pension will largely decide the way that the sharing of pension benefits plays out, however.

A benefit of pension sharing is that both individuals in a divorce can maintain their own pension plans, either separately or together, depending on the structure of the retirement plan; they also may be able to weigh in on when the pension benefits are paid. Many divorcees prefer to have the pension plans divided, but not every pension beneficiary has that choice. Sometimes, it just comes down to the fine print in a retirement plan to decide whether pension benefits are shared in the same investment fund or whether those assets may be split into separate accounts.

Another outcome of pension splitting is that the ex-spouse of the pension beneficiary is not penalized or impacted if the other individual in the divorce dies. Remarriage on the part of either ex-spouse does not impact pension sharing either. Litigation will most likely be involved, however, as pension splitting is typically resolved in a court of law. The terms of the pension settlement may be reached with attorneys before entering the court system, which could help on the administrative side of pension sharing. In the end, the court determines how pension assets will be shared between the two parties getting divorced.

The worth of a pension benefit for each individual is determined by a number of factors and calculated according to a formula. Some of the criteria include the anticipated earned income for the individuals who are applying for pension benefits and the age at which each party will become eligible for the benefits. The value of the benefits is calculated before pension sharing and again after the sharing occurs to realize the true amount.