LOSAP & DIVORCE

Last time we discussed how LOSAP assets are assets of the sponsoring municipality.

One ramification of this is when a participant goes through a divorce. Most people are aware of a Qualified Domestic Relations Order, or QDRO, where pension assets are divided. Many try and divide LOSAP assets in the same way.

But since the assets are municipal assets, a participant doesn’t own them, and therefore cannot assign them to an ex-spouse. Therefore, a LOSAP benefit cannot be assigned in a divorce proceeding through a QDRO or similar procedure.

However, that doesn’t mean that the spouse cannot claim the LOSAP as a marital asset and use it to trade off on another asset. For example, if the LOSAP benefit is $10,000, and the couple has a car worth $10,000, then the participant could keep the LOSAP and the ex-spouse keep the car.

Or, the ex-spouse could have the court order the participant to pay the ex-spouse a portion of the LOSAP benefit similar to alimony. However, the participant would be responsible for 100% of the tax liability, so that should be considered when deciding what share of the benefit the ex-spouse should receive.