When you divorce, the court will issue a divorce decree that, among other things, divides the property you and your spouse accumulated during your marriage. Like real estate, bank accounts and personal property, pensions are considered property that can be divided by the court. Non-vested pensions can be more complicated to divide because the benefits have not yet been fully earned.
Vested vs. Non-vested
A pension is non-vested as long as you have not worked in the company for enough years to receive benefits under the plan. The pension vests when you complete the required number of years. For example, if you become eligible to receive benefits from your company’s pension plan after five years of employment, the pension remains non-vested until you have worked for the company for five years. At that point, your pension becomes vested. If you quit before five years, you will receive no benefits from the pension. If your state requires a pension be vested before it can be divided, the court could decide to divide other marital property unequally to compensate for the inequity.
State laws determine the distribution methods for marital assets, along with which assets are considered divisible by the courts. Many states direct their courts to divide marital property equitably between the spouses. In most states, non-vested pension rights that accrue during the marriage are considered marital property. Thus, these rights are subject to division and distribution between the spouses.
Methods of Distribution
A non-vested pension is a bit trickier to divide than other types of property since the benefits have not been fully earned yet. Typically, a pension is divided using the immediate offset method, in which the potential value of the pension is credited toward other types of property. The deferred distribution method gives the appropriate pension share to each ex-spouse when the pension benefits become payable. Deferred distribution allows the court to enter a Qualified Domestic Relations Order, which directs the pension plan administrator to pay a certain share of the pension directly to the ex-spouse.
When spouses divide the pension using an immediate offset method, they must determine the value of the non-vested pension. This involves considering the remaining time before the benefits vest, the length of the marriage and the contributions each spouse made to the pension. You and your spouse can reach your own agreement about the non-vested pension, and courts typically will accept your agreement.