Often a couple starts their divorce believing that the marital residence is their most financially secure asset.  This is because there is equity that can be quantified, and because real property tends to increase in value within the market, and thus there is long-term protection with a home. But the home is not always the largest asset. The particular asset that can be disregarded because its worth is misunderstood and miscalculated is the one that holds the most value– the pension.

A pension is a retirement plan provided by an employer that offers regular income payments to employees after they retire.  These payments are typically based on factors such as the employee’s salary, years of service, and contributions made to the pension fund throughout their career.  Pensions are designed to provide retirees with a steady stream of income to support them during their retirement years, ensuring financial security after they stop working.

Valuing a pension is complicated because it involves the present value of a future benefit.  Thus, factors such as the pension holder’s age, life expectancy for both spouses, retirement age, anticipated payment amounts, and discount rate are all taken into consideration. Therefore, should the parties wish to effectuate a buyout of the pension, doing so necessitates the hiring of an actuary to approximate, based on details of the plan, mortality rates, inflation, investment returns, and other assumptions.  If a pension was acquired before the marriage, there may be a separate component that would impact the percentage that the surviving spouse would receive, and thus the value. Alternatively, sharing the pension as per each party’s marital portion requires a Qualified Domestic Relations Order (obtained after the divorce) and waiting for the pension holder to retire before receiving any payments. 

To add to the complexity, there are different survivorship election options depending on the plan that will impact the monthly benefit amount as well as the duration of payments (i.e. until the pension holder’s death or both parties’ deaths).  Each pension election option carries different tax implications. If a pension is already in payout status, this requires further conversation about sharing current payments, which could alter the support calculations. 

Dealing with the distribution of a pension can be overwhelming for both the pension holder and the surviving spouse for many reasons. On the one hand, the loss of a portion of the pension yields a lack of future income stream during retirement, which can be substantial and provide the only means of financial security, especially in long-term marriages. On the other hand, it may be important to achieve financial independence by way of a lump sum amount of money on an immediate basis and to avoid potential future risks associated with changes in the plan or investment performance.

Our well-versed attorneys provide the necessary guidance to reach an agreement about dividing the most important asset attached to a couple. The conversation does not start and end with offering two options in the pension division (buyout or share).  Rather, the specifics of what each option looks like must be investigated because the priorities of each individual may vary. Our attorneys recognize the importance of asset division in a way that is sensible and meets their financial needs based on how they see their future, and the pension is no different.

At Berner Law & Mediation Group, we guide clients through the nuances of pension division in mediation and collaborative divorce, including valuation, survivorship options, and Qualified Domestic Relations Orders (QDROs).  Contact us to learn more about how we can help you with clarity and confidence.