The division of a pension plan in a divorce is undeniably complicated, but an equitable distribution generally comes down to a couple of basic questions: 1) How will the pension be valued? 2) How will the pension be distributed? Another question that needs to be asked is whether or not the non-pensioner spouse should receive survivorship benefits, but this is something that cannot be adequately answered without consideration of the first two questions.
To understand why, you need to examine the two ways in which a pension may be distributed in the event of a divorce. The first option is to receive direct distributions from the pensions under the terms of a qualified domestic relations order (QDRO). The second option is known as the “immediate offset method”, which involves determining the pension's present value in order to receive one or more other marital assets of equal value. This method allows the pensioner to keep his or her pension in full, while giving the other spouse a larger portion or complete ownership of another asset.
While the non-pensioner technically has both options, spouses may be limited to one method based on their circumstances. For example, a couple may not have enough marital assets to fund an immediate offset distribution. This is often the case for couples who earn mid to low level wages, and lack substantial properties such as a house or investment portfolios. In that case, the judge will most likely decide that deferred distribution is the best method, which means that the non-pensioner will receive his or her portion of the pension upon the pensioner's retirement.
The deferred distribution method brings us to the question of survivorship benefits, i.e., the continuation of payments should the pensioner predecease the non-pensioner. This sounds like a good idea in theory, but electing for survivorship benefits will result in the pensioner's payments being reduced to provide for those benefits. In order to determine whether such an arrangement is fair to both parties, the courts must consider the following factors: 1) the length of the marriage; 2) the length of anticipated service in the pension plan; 3) the age and health of each spouse; 4) the options available to both spouses under the plan's terms; 5) the financial impact of alternate distribution options to both parties; 6) the impact of the survivorship benefits on the benefits to be received; 7) the value of the pension should the spouse die prior to retirement; 8) the availability of other assets for retirement funding; 9) the financial circumstances of both spouses; 10) the availability of life insurance; 11) any other factors that are relevant to the case.
These are incredibly complex factors that require input from divorce professionals such as divorce attorneys and forensic accountants. For more information about the distribution of pension plans in a divorce, or any other questions about the division of marital properties, please speak with the experienced attorneys of Villani & DeLuca, P.C.