Pension Valuations in Divorce
Many people are apprehensive when approaching the division of marital assets in their divorce, especially when it comes to assets of high value, such as pensions and retirement accounts. Pension valuations are an important step in many divorces. Pensions, though earned by one spouse through his or her employment or trade organization, may be considered a marital asset and thus are subject to division. Marital assets must be valued in order to be fairly divided. To value a pension, the type of plan must be determined in order for the proper valuation method to be used.
Defined benefit plans pay out monthly at retirement according to a formula set forth in the plan summary. Defined contribution plans pay out according to a balance of voluntary employee contributions. The cut-off date almost must be established. This is the date the plan benefits stop, for the purposes of valuing only the portion of the pension attributed to the marriage. Using this cut-off date, the coverture fraction can be determined.
This is a tool used to ascertain the pension value that is attributed to the marriage.
The method with which your pension can be valued will depend on what type of plan it is. Defined contribution plans can be valued with; the segregation method, which separates the pre-marriage pension value plus growth from the value when the marriage ended, the subtraction method, which subtracts the pre-marriage value from the post-marriage value, or the coverture method, wherein the coverture fraction is used to determine the pension value that is attributed to the marriage. Defined benefit plans are valued according to formulas that take into consideration the value that would have been gained between the end date of the marriage and the plan distribution date. The two methods differ in the interest rates they calculate the value with.
Pension and other retirement plan divisions may require a court order to be divided. This is called a qualified domestic relations order, or QDRO, and provides the plan administrator and the court instructions for transferring some or all of the value to the alternate payee. QDROs are complex documents so make sure you have assistance when completing one to avoid costly errors. If you are going through a divorce and have a pension that may need to be divided, consider working with a highly skilled divorce mediator with experience working on complex asset divisions.
Mediation is particularly well suited for the division of marital assets as it helps spouses work out fair and reasonable division without the intervention of the court system.
Are you going through a divorce and have questions about how your pension will be valued? If so, Mediation Advantage Services can help. Experienced in divorce mediation, family law attorney Polly A. Tatum can help you efficiently mediate your divorce financials while preserving your financial future. Based in historic Worcester, our firm serves all cities and towns throughout Massachusetts and Worcester County including, Auburn, Paxton, Leicester, Sutton, Grafton, Shrewsbury, Westboro, Northboro, Southboro, Holden, Sterling, Princeton, Worcester, Charlton, Millbury, Dudley, Spencer, Brookfield, Sudbury, Natick, Framingham, Hopkinton, Milford, Blackstone, Leominster, Fitchburg, Acton, Jefferson, Barre, Oakham, Cambridge, Newton, Marlboro, Lancaster, Bolton, and Hudson. Call our office at (508) 795-1557, fill out our online form, or email us at [email protected] today to schedule your Complimentary Mediation Success Planning Session. You can also sign up for our eNewsletter or download our free guide for more information regarding divorce in Massachusetts.