If a person earns a pension or has a retirement plan through his or her employer, that pension or retirement plan may become property that is at issue during a divorce. In Kentucky, most pension plans are considered marital property and can be divided between the spouses during a divorce proceeding.
A pension plan is a benefit earned from employment or military service. Kentucky has two kinds of pension plans: a contribution plan and a benefit plan. A contribution plan, a 401k for example, is a type of pension in which both the employee and the employer pay in a certain amount each year. A benefit plan is one in which the pension’s value increases based on an employee’s salary and length of employment with a company.
Kentucky does not consider all pensions marital property. A pension earned by a public school teacher in Kentucky is not considered a marital asset and is exempt from distribution to the other spouse. The full value of a teacher’s pension is awarded to the earning spouse upon divorce.
Pensions as Marital Property
In Kentucky, most pension plans are considered marital property. For example, company pensions and military pensions can be divided upon divorce. In order to determine whether a pension is a marital asset, a court will examine what portion of the pension was earned while the spouses were married. For example, if a spouse has been employed or serving in the military for 30 years, but has only been married for 15 years, the other spouse would be entitled only to the value of the pension for the 15 years of the marriage.
Dividing the Pension
To the extent that a Kentucky court determines that a pension or part of a pension is a marital asset, it is divided upon divorce based on “equitable distribution.” This means that property is divided fairly, though not necessarily equally. A Kentucky court will examine several factors, including: (1) the length of the marriage, (2) the value of each spouse’s separate property, not eligible for division between the spouses, (3) each spouse’s contribution to the marital property to be divided, (4) each spouse’s economic standing, including income or ability to earn income and (5) which spouse has custody of any children and who will maintain ownership and/or possession of the marital residence.
If a court determines that one spouse is to receive a portion of the other’s pension, the receiving spouse must file a QDRO with the pension plan’s administrator. A QDRO, or Qualified Domestic Relations Order, gives the pension’s administrator the right to transfer the court-ordered percentage of the pension to the receiving spouse. The QDRO also ensures that the receiving spouse will not be required to pay taxes on any amount of money transferred from the pension.