Splitting pensions in divorce is probably the most misunderstood yet one of the most important considerations in the divorce process.
One method to divide pensions is the ” as, if, and when” approach. Essentially, if and when the employee-spouse retires, the ex-spouse is paid his or her marital share of the pension on a monthly basis.
The alternative is to value the pension in today’s dollars, calculate the respective spouse’s share of that value, and “offset” the share given with other marital assets. A frequent example that I see of this is where Federal Employees keep their pension and give their TSP to their ex-spouse. To use this approach, there must also be additional marital assets (home equity, other retirement plans, etc.) to offset the value of the pension.
The problem lies in the fact that spouses do not know what the present day value of their pension is. Defined Contribution Plans, e.g. 401K, TSP, 403B, etc., provide employees with quarterly statements that show what the values are at that time. For pensions, most times the only information available to employee-spouses is what their future benefits would be in retirement.
Frequently, spouses who both have pension plans mistakenly just compare their respective future benefits and base their decision on those alone. This, however, is where real Divorce Financial Planning Services is a must!
In valuing the marital portion of your pension, additional factors must be considered including a discount interest rate, mortality, date of hire, and date of retirement. Beyond the numbers, a Certified Divorce Financial Analyst can help you decide if it is more beneficial for you to have the funds now or wait for your spouse’s retirement to receive your marital share.
Email or call John now at 410-988-7333 for help in making the best decision for you and your family!