Category: Survivorship

How the Certainty of Death Causes Uncertainty in Dividing Retirement Benefits

How the Certainty of Death Causes Uncertainty in Dividing Retirement Benefits

As the oft-quoted line attributed to Benjamin Franklin goes, “In this word nothing can be certain, except death and taxes.”  In dividing retirement benefits at divorce, practically all interested parties are aware of and discuss tax issues.  However, are you properly addressing the issues that can arise if one of the parties dies unexpectedly?  After all, death is inevitable and it can have a significant impact on the benefits, if any, your client receives.

The issue of survivorship is especially important in regard to dividing a defined benefit plan in divorce.  A pension is meant to a benefit for life.  As such, the benefit ends upon death.  If the separation agreement/divorce decree and/or the order dividing the pension does not properly address the issue of survivorship, then your client could receive nothing.

There are two big questions of survivorship that need to be addressed when dividing a defined benefit pension at divorce: What happens if the participant dies prior to commencing the benefit and what occurs if the participant dies after commencing the benefit?  For the first question, that matter is generally addressed by naming the alternate payee as a beneficiary for a Qualified Preretirement Survivor Annuity (QPSA).  The second question is generally addressed by dividing the benefit using a separate interest approach (if the plan allows for such an approach), which adjusts the alternate payee’s benefits to his/her life so the participant’s death has no effect on the payments.  In the alternative, if the benefits are divided on a shared payment basis, then the alternate payee needs to be named as a beneficiary of the Joint and Survivor Annuity (J&S) to continue benefits after the participant’s death.  Each of those solutions then brings on different questions such as can the participant name a subsequent spouse as another beneficiary for QPSA and/or J&S?  If so, how much of a benefit can the subsequent spouse receive? 

Aside from defined benefit plans, there can be issues with 401(k) plans and Individual Retirement Accounts if a party dies unexpectedly.  If the money has not been segregated from the account and the participant dies, you may have to sue the estate to attempt to get the money your client is owed.  Further, if the participant forgets to change his/her beneficiary on the account after divorce, then the former spouse may be getting a windfall that is difficult to claw back.

It is important to consider and properly address issues of survivorship when dividing retirement benefits in divorce.  This is a complicated subject, one entire chapter of the Dividing Pensions in Divorce, the treatise authored, in part, by our own Dave Kelley, is dedicated to the issue of survivorship.  Further Dave Kelley and James Myers from our office wrote an article on how Ohio courts are treating the issue of survivorship titled “Survivorship: Inherent Right or Ancillary Asset in a Pension?” that will be published (or has been published depending on when you read this post) in the September/October issue of the Domestic Relations Journal of Ohio. Although survivorship issues can be complicated, we can help.  Reach out to us and we can point you in the right direction or set you up with a service to aid you.  We’re here to help you through the entire divorce process to help protect your clients’ interests in retirement benefits.