What, if anything, does “vesting” mean in connection with the division of retirement plan assets in a divorce?
Vesting means ownership. If a retirement benefit/account is 30% vested, that means that the participant owns 30% of the benefit/account. However, should the participant remain in the Plan, that vesting could eventually reach 100% (since vesting grows with each year of Plan participation).
So, how does that affect division in a divorce? First, if a QDRO is used to divide the benefit/account, vesting is typically ignored because the deferred sharing of the benefit/account will most likely occur when vesting is 100%. Second, if the valuation method is used, vesting may be “considered” because the valued benefit/account will typically be offset against other marital assets at a time when vesting may be less than 100%.”Considered” means the probability of the participant spouse remaining in the Plan till full vesting occurs and that must be part of the valuation assumptions discussion.
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