Delayed Retirement & Dividing Retirement Benefits in Divorce
A common situation in a divorce involving pension benefits can arise when a spouse who is employed reaches retirement age but postpones retirement to continue working.
An employee spouse is free to postpone retirement and continue working even if he or she reaches retirement age. However, this option sometimes exposes the nonemployee spouse to risk. The risk being referred to here is the possibility of losing the retirement benefits without enjoying them if the employee spouse dies while still employed.
So, the law gives the nonemployee spouse some options in order to protect his or her interest in the community property share of the pension benefits.
But first, let us begin with the employee spouse. The employee-spouse has the following options when he or she becomes eligible for retirement:
- Retire and thereby commence drawing from the stream of pension income, with the result that the nonemployee spouse may start to draw his or her share of the community property interest as well; or
- Continue to work and thereby forgo the income he or she would have drawn, with the result that the nonemployee spouse is compelled to forgo what would have been his or her share as well.
If the employee spouse opts for the second option (delays retirement), the nonemployee spouse likewise has two options, namely:
- Wait to draw his or her share when the employee spouse commences receiving benefits (with the possibility of an increased benefit as a result of greater age, longer service, or higher salary); or
- Demand immediate payment to compensate for what would have been his or her share (without a possibility of an increase)
Should the non-employee spouse opt to demand immediate payment, the employee spouse, in turn, has two options:
- Make arrangements to meet the demand for immediate payment; or
- Simply retire and allow the nonemployee spouse to draw his or her share.