Dividing Retirement in Divorce
There’s a common misconception that, without exception, after divorce each spouse will walk away with 50% of the retirement accounts. The reality is just a teensy bit more complicated than that.
You should definitely know, ahead of time, what your marital share of the retirement accounts will look like.
First, let’s take a look at the formula… Here’s what it looks like:
Number of years employed during the marriage
________________________________________ x 50% = marital share
Total number of years employed
So, basically, your marital share is half (or 50%, whatever you want to call it), but it’s only calculated based on how long you’ve been married while the interest in that particular retirement asset has been accruing. You didn’t earn an interest in your husband’s retirement (and, likewise, he didn’t earn an interest in yours) before you got married. You won’t earn an interest in your husband’s retirement (and, likewise, he didn’t earn an interest in yours) after you divorce.
If you have even the most basic understanding of math, that should tell you that, although it is possible to have a total overall 50% interest in the marital retirement, it is also possible (in fact, probable), that your interest will be less than 50%.
Let’s look at a couple of examples.
Molly married Bill in 1990. In 1995, Bill enlisted in the Navy. In 2005, Molly and Bill divorced. Then, in 2010, Bill retired from the Navy after 20 years of service.
What’s Molly’s interest in Bill’s retirement? He was in the Navy for 20 years, but not all of those 20 years overlap with his marriage. Molly and Bill were married before he joined the Navy, so she wasn’t earning an interest in his military retirement then. Molly and Bill were divorced before he retired from the Navy, so there’s 5 years after divorce where Molly wasn’t earning an interest in Bill’s retirement.
Molly was married to Bill in 1995, when he joined the military, and stayed married to him until 2005. So, she has ten years worth of interest in his retirement. She gets 50% of the interest in the retirement for that ten year period—but 0% of the interest in the 5 years before he enlisted and 5 years after they divorced that he stayed in the military. Molly’s interest is 25%, because she has 50% of 10 years, and her husband ultimately served 20 years before retirement—which means, overall, that she was only married for ten out of the twenty years, and that only half of her ten was marital.
Marla and Tony were married in 1990, too. Tony enlisted in the Navy in 1991. He served a full twenty years in the Navy, before he retired in 2011. Marla and Tony divorced in 2015.
What’s Marla’s interest in Tony’s retirement? Because Marla and Tony’s married overlapped perfectly with his dates of service, Marla has a 50% interest in his retirement. Even though she was actually married for longer, he stopped earning an interest in his retirement when he retired in 2011—so, likewise, Marla stopped earning an interest in it.
Marla was married to Tony from 1991 until 2011, while Tony was earning his retirement. Because the twenty years of marriage overlapped with Tony’s twenty years of military service, Marla has a 50% interest.
One more example?
Jennifer married Harley in 2000. At the time, Harley had already been working for his company for five years. In 2005, Jennifer and Harley decided to divorce. Today, in 2015, Harley still works for the same company.
What’s Jennifer’s interest in Harley’s retirement? We don’t know! Until Harley retires, it’s impossible to calculate Jennifer’s interest. In cases like this, where the husband hasn’t retired yet, we can’t calculate an exact percentage of wife’s interest.
So, what do we do? Instead of putting in that Jennifer has a 25% interest or a 50% interest in Harley’s retirement, we’ll put the retirement formula in the separation agreement. When Harley retires, we can calculate Jennifer’s percentage of interest.
Jennifer’s interest in Harley’s retirement is a little less with every year that Harley works. Why? Because she was only married to Harley for five years while he was earning an interest in his retirement and, with every extra year that Harley works, her five years accounts for less of the overall percentage of retirement earned. Five years out of ten is a 25% interest (because Jennifer has half of the interest in those five years, with ten years interest overall). Five years out of twenty years, on the other hand, is only a 12.5% interest. If he works more than twenty, the percentage will continue to decline.
So, what’s the bottom line? You DO get 50%, but your 50% is only 50% of the marital share—which, overall, could be 50%, or, possibly, less. It depends on the length of your marriage, the length of your husband’s employment, and how much of that time overlaps.
What if it’s your retirement account? It works the same way. Your retirement can be divided, just like his retirement.
The thing about retirement is that it’s not really a negotiating point. You have a marital shared, based on the length of your married, the length of your (or your husband’s) employment, and how much time overlaps. It’s not really negotiable. If you went to court, the judge would award you your marital share.
Some things are bargaining points. Things like spousal support are a little more loosey goosey, a little more up for interpretation. There’s sometimes a wide range between what one side suggests to the other side, and what a judge might award if the case were to go to court. With retirement accounts, it’s not like that at all.
My husband says I’m not entitled to any of his retirement. Is that true?
Lots of times, husbands make up stories about why their wives aren’t entitled to receive a portion of their retirement.
It’s just not true. Regardless of how long you’ve been married, if any of your marriage has overlapped with his employment, you have an interest in his retirement. If you’ve only overlapped for a year or two, your interest is definitely small—but it still exists.
You don’t have to give it up. In fact, no attorney you could possibly hire would recommend that you give up an interest in something that you’re entitled to receive.
I don’t want him to get a share of MY retirement!
Just like you automatically have an interest in his retirement, he has an interest in your retirement. If your retirement accounts are equal (or close to equal), you may choose to give up your share of his retirement in exchange for his giving up an interest in yours. That happens sometimes.
If you negotiate, you have a lot more freedom than if you let your case go in front of a judge. In court, the judge is going to divide the marital retirement accounts according to each party’s marital share. In negotiation, though, you can propose that he give up his share in your retirement. If he agrees, then you’re fine.
Retirement is one of the more stressful but least complicated aspects of divorce. The law regarding retirement accounts is very clear cut, so it’s really pretty easy to determine how much you’ll receive. Even if your husband hasn’t retired yet and your marital share isn’t that easily and immediately discernible, we can just put the formula in and establish your share later on.
For more information about how retirement is calculated or to schedule a consultation with one of our licensed and experienced Virginia divorce attorneys, give our office a call at (757) 425-5200.
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