Is a pension considered alimony?
Is a pension considered alimony?
You’re headed toward divorce. You know the marriage isn’t working and this has to be done. But you’re worried about what your financial life will look like after the split. What kind of lifestyle will you be able to afford? How much can you spend on housing? Will you still be able to vacation?
If you have both a pension and alimony on the line in divorce, those are treated as separate, but interrelated issues. A pension payment to the other spouse is not considered alimony. However, it may be considered as income to the other spouse, which ultimately impacts the alimony calculation.
Let’s break this down.
First, how a pension is divided in divorce is part of property division. In MA, everything owned by either party is considered “property” and subject to division as part of the process. How exactly the property is divided depends on a number of factors including the length of the marriage, the ages, health, and earnings of the parties, ability to acquire future assets, contributions to the marriage (both economic and non-economic), and other factors.
Typically, barring financial misconduct, the longer the marriage, the more likely it is that the parties will approximately split equally the assets they own, both individually and jointly—especially those acquired during the marriage.
A pension is usually one of the more valuable assets in divorce. It’s essentially a guaranteed regular payment (usually monthly) that begins when the pensioner retires. Therefore, if the pension is divided as part of the divorce, when the pensioner retires, both the pensioner and ex-spouse begin receiving their respective regular pension payments.
The exact breakdown of the payments depends on how the asset was divided. For example, if some of the value of the pension was accrued outside of the marriage, the pensioner usually keeps that portion, and therefore may receive larger payments.
Alimony, on the other hand, is an order for payment of support—usually weekly, but it can be a lump sum—from the higher earner to the lower earner in the marriage. Alimony is determined by a number of factors including the incomes of the parties, length of the marriage, prospects for future earnings, age, health, assets, whether child support is paid and how much, and other factors.
In practice, the longer the marriage and the bigger the difference in earnings between the parties, the more likely it is that the higher earner will have to pay alimony post-divorce.
This leaves us with the issue of the interplay between alimony and pension division. How do they affect each other?
Although they are separate issues, the court often considers one in deciding the other.
For example, on one end of the spectrum, if the higher earner is not close to retiring, there may be an alimony order and the pension is divided pursuant to divorce. Remember, however, that the income from the pension isn’t realized until the pensioner retires.
Once, the pensioner retires and pension payments kick in, the alimony order may be modified depending on the circumstances. In fact, the MA Alimony Law in effect in 2020 creates a presumption that alimony terminates upon the payor reaching social security retirement age.
On the other end of the spectrum, if the pension is in pay status and the pensioner depends on that money for income, the pension payments will likely be treated as a stream of income, rather than an asset subject to division. Therefore, it’s less likely in this scenario that the pension will be divided. In this case, what’s left is to compare the respective income of the parties to determine if alimony is necessary for either party.
Although pension payments are not considered alimony, there is an interplay between these two divorce issues. Therefore the timing of the divorce relative to when pension payments begin and the parties respective incomes must be analyzed on a case by case basis to determine an optimal plan.
If you have any questions about pensions, alimony, or divorce in general, feel free to contact us.