Pension sharing is a solution for dividing retirement benefits in divorce. The structure of the pension plan determines how benefits are shared, and both parties can maintain their own plans. Pension splitting is resolved in court, and the value of benefits is calculated before and after sharing.
Pension sharing means making the best of a difficult situation. When divorce occurs, the division of financial assets, marital assets and retirement benefits can be a long and complex process. For divorced couples, pension sharing is a guideline that gives structure to the division of retirement benefits, including the intended beneficiary and ex-spouse. How pension benefits are shared largely depends on the type and extent of the pension benefits, as well as the pensioner’s financial situation.
Often, pension sharing is sought as a solution in the event of divorce. It is highly likely that both parties to a divorce can receive retirement benefits and still be able to proceed with independent living. However, the rules and structure of a pension will largely decide how pension benefit sharing plays out.
One advantage of pension sharing is that both divorced people can maintain their own retirement plans, either separately or together, depending on the structure of the retirement plan; they may also be able to affect when retirement benefits are paid out. Many divorcees prefer to split their retirement plans, but not all pension recipients have that choice. Sometimes, in a retirement plan it’s just a matter of fine print to decide whether retirement benefits are shared in the same investment fund or whether those assets can be split into separate accounts.
Another result of pension splitting is that the pension recipient’s former spouse is not penalized or affected if the other individual in the divorce dies. Remarriage by one of the ex-spouses also does not affect pension sharing. However, litigation will most likely be involved, as pension splitting is usually resolved in a court of law. The terms of the pension settlement can be reached with lawyers before entering the court system, which could help from an administrative point of view of sharing pensions. Ultimately, the court determines how the retirement assets will be split between the two divorcing parties.
The value of a retirement benefit for any individual is determined by a number of factors and calculated according to a formula. Some of the criteria include the expected earned income of people applying for retirement benefits and the age at which either party will be eligible for benefits. The value of benefits is calculated before pension sharing and again after sharing occurs to realize the true amount.
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