What Happens to an NHL Pension and 401(k) in a Divorce?
Retirement assets are often the largest thing a divorcing couple owns, and for a professional hockey player they are also the most complicated. An NHL pension, a U.S. 401(k), a Retirement Compensation Arrangement, and deferred contract money are governed by different rules, sit under different jurisdictions, and cannot be divided by simply agreeing on a number.
Here is a general overview of how these assets are usually treated, and where hockey families run into trouble.
Can an NHL pension be divided in a divorce?
In most cases, yes. Retirement benefits earned during a marriage are generally treated as marital or community property, and that includes a pension earned during a playing career.
What varies is how much is divisible and how the split is calculated. Courts commonly look at the portion of the benefit that accrued between the date of marriage and the date of separation or filing, rather than the entire benefit. For a player who married partway through his career, or who married after retiring, that distinction can change the outcome substantially.
The rules that decide all of this come from state or provincial family law, not from the plan. The plan simply carries out what a valid order tells it to do.
What is a QDRO and why do you need one?
A Qualified Domestic Relations Order is a separate court order that instructs a retirement plan to pay part of a participant’s benefit to a former spouse. A divorce decree by itself is usually not enough. Without a properly drafted and accepted order, the plan will generally continue paying the participant as if nothing happened.
Three things tend to go wrong.
The order gets drafted in generic language that the plan rejects. Every plan has its own administrative requirements, and a defined benefit pension and a defined contribution 401(k) require different provisions.
The order gets delayed. Some people finalize the divorce and handle the retirement paperwork later. Benefits can be paid out, accounts can be moved, and options can be elected in the meantime.
The order fails to address survivor benefits. For a pension, deciding what happens if the participant dies before or after payments begin is a separate decision from deciding how the monthly benefit is split, and it needs to be stated explicitly.
Because the NHL plans are large multi employer arrangements, the administrative requirements should be requested directly from the plan before the order is drafted, not after.
How is a 401(k) divided differently from a pension?
A 401(k) has a balance you can see. Dividing it usually means transferring a stated dollar amount or a percentage of the account to the former spouse, often into a retirement account in that person’s own name. Done correctly under a qualifying order, the transfer itself is generally not a taxable event, and tax is paid later when money is withdrawn.
A pension does not have a balance in the same sense. It is a promise of future income. Dividing it means deciding how a future stream of payments gets split, which raises questions a 401(k) does not: when does the former spouse start receiving payments, what happens if the participant dies first, and is the benefit valued at today’s accrual or projected forward.
For players who participated in both the older and current NHL plans, or who hold benefits in more than one plan, each benefit needs to be identified and addressed individually. Assuming one order covers everything is a common and expensive mistake.
Are signing bonuses and deferred compensation marital property?
This is where hockey contracts create questions that most family law matters never have to answer.
The general principle is that compensation earned during the marriage is marital property, and compensation earned outside of it is not. Applying that principle to a signing bonus paid in a lump sum, or to deferred money paid years after it was earned, is not straightforward.
Points of dispute typically include whether a bonus paid during the marriage compensates work performed before or after it, how to treat a contract signed during the marriage that pays out afterward, and whether deferred compensation should be valued at present value or divided as received.
These are legal questions with fact specific answers. The role of your financial team is to make sure everything is identified, documented, and accurately valued so that the legal decisions are made with complete information.
What makes cross border divorces more complicated?
Hockey families move. A player might be a U.S. resident with Canadian registered accounts, a Canadian citizen with a U.S. 401(k), or a couple who married in one country and divorced in another.
Several issues stack up in these cases. Which country’s courts have jurisdiction affects which rules apply. A U.S. qualifying order does not automatically bind a Canadian plan, and a Canadian order does not automatically bind a U.S. plan. Registered accounts like an RRSP have their own division rules and their own tax consequences on transfer, which differ from the U.S. treatment of an IRA or 401(k). Support payments can be deductible or taxable in one country and not the other.
A cross border divorce generally needs family law counsel and tax counsel in both countries. Trying to save money by using one advisor for both sides tends to cost more later.
What should you do first?
Build a complete inventory before anything is negotiated. That means every retirement plan you participated in, every contract with money still owed, every account in either country, and the current documented value of each.
Request the plan administrative procedures in writing. Each plan will tell you what an order must contain in order to be accepted.
Decide the survivor benefit question deliberately rather than leaving it to a template.
Coordinate the financial modeling with the legal strategy. An even split on paper can produce very uneven outcomes after tax, after timing, and after the different liquidity of each asset.
Frequently asked questions
Does a divorce decree automatically split my pension? Usually not. Most plans require a separate qualifying order that meets their administrative requirements before they will pay any portion of a benefit to a former spouse.
Is the whole pension divided, or only part of it? Courts commonly divide only the portion that accrued during the marriage, though the method varies by jurisdiction.
Is there tax owed when a 401(k) is split? A transfer made under a qualifying order is generally not taxed at the time of the split. Tax is generally owed by the person who eventually withdraws the money.
What if I have benefits in both the U.S. and Canada? Each plan is governed by the law of its own country. Orders generally are not interchangeable, and you will likely need counsel in both jurisdictions.
The Hockey Wealth Group works with current and former NHL players and their families in the United States and Canada. If you are working through a divorce and want your retirement assets accurately identified and valued, you can schedule an introductory call.
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This article is provided for educational purposes only. It is not legal, tax, or investment advice, and it does not address the law of any particular state or province. Family law, plan rules, and tax treatment vary and change. Consult a qualified family law attorney and a tax professional regarding your situation. Investment services in the United States are provided by Oceanside Advisors LLC dba the Hockey Wealth Group, an SEC registered investment adviser. Registration does not imply any particular level of skill or training.