Retirement and Survivorship Benefits Upon Divorce
The issue of dividing retirement assets can become contentious and time-consuming during divorce litigation and is often not resolved until well after the divorce has been finalized and the parties are living separate lives. When former spouses agree as part of a Marital Settlement Agreement (MSA) to divide up retirement accounts, specifically pensions and annuities, the divorce is just the beginning of a process that can be delayed and prolonged by various obstacles. Sur
Further, issues involving distributing a 401(k) or IRA can be tedious. Still, unlike a pension paid out monthly once in pay status, the marital portion of a 401(k) or IRA is transferred in one lump sum to the alternate payee former spouse, simplifying the process.
Who Gets the Funds?
Ex-spouses often clash over whether one spouse should be entitled to continue receiving the benefit of their former spouse’s pension upon that party’s death when the ex-spouse with the pension benefits was a state employee such as a policeman, teacher, firefighter, or member of the judiciary. While certain state employees are by law prohibited from providing retirement benefits upon their death to an ex-spouse, the rules relating to the distribution of pension funds upon death are not all black-and-white.
Survivorship Benefits in Divorce
In New Jersey, the general rule is that a police or fireman’s pension does not have what is referred to as “survivorship benefits.” Therefore, as part of divorce negotiation, a member (or former member) of the police or fire department cannot agree that upon his/her death, their ex-spouse will continue to receive benefits each month from a pension.
However, state employees such as teachers, who often have TPAF (Teachers Pension and Annuity Fund) pensions, can negotiate survivorship benefits with an ex-spouse to continue compensating their ex-spouse if they should pre-decease them. For example, if two parties, one of whom is a former public-school teacher, are divorced, and the party that was a teacher dies before the ex-spouse a few years into receiving his/her pension, the ex-spouse can continue to receive monthly pension benefits for the remainder of his/her lifetime from that TPAF pension.
State Employees and Survivor Benefits
State employee pensions that allow for survivorship benefits often include a group life insurance provision to protect the ex-spouse if the spouse who is set to receive monthly pension benefits dies post-divorce, prior to retirement when the pension goes into pay status.
In that case, the group life insurance provision protects the ex-spouse who had negotiated survivorship benefits and anticipated receiving a pension benefit for many years post-divorce. The ex-spouse receives a lump sum payout similar to a life insurance benefit since the ex-spouse with the pension will never receive the benefit of monthly pension payments.
Discuss Survivorship with a New Jersey Divorce Attorney
When negotiating a divorce settlement, it is important to discuss the issue of survivorship benefits with your matrimonial attorney. Failure to include any reference to survivorship benefits can lead to confusion and uncertainty years later when attempting to execute a Domestic Relations Order (DRO) to distribute retirement accounts per the divorce agreement. Please contact our office to discuss this issue further if it pertains to your case.
