Key Points About Retirement Benefits

The marital home and pensions are two of the most valuable assets a divorcing couple divides. Sometimes a spouse’s pension can be worth more than the value of the marital home. Pensions have what is known as present value, or time value of money, that is, what today’s money is worth tomorrow, which can make calculating their value difficult.

Very often, one spouse fails to appreciate just how much his or her share of the spouse’s pension is worth. For starters, the parties should determine if the spouse has other pension or retirement plans from previous employers.  The couple should determine the type of retirement benefit. Retirement plans can be either a defined benefit, which is the company pension, or a defined contribution, such as the 401k.

Defined benefit plans require professional attention. Generally, increases in the value of a pension earned during the years the couple are married are marital property and subject to distribution.

Very often, the spouse that is going into the divorce with a small pension or none at all, needs an appraisal of the value of the other spouse’s pension. This requires that a pension appraiser determine the present value of the retirement benefit.

In a divorce, pension benefits are paid to the former spouse via a QDRO – a Qualified Domestic Relations Order. QDROs have the effect of court orders, which specify the amount paid to the spouse and survivor benefits so that payment continues if the former spouse dies.

Mistakes made in the preparation of a QDRO can cause delays because pension plan administrators demand that the orders comply with the terms and conditions of the pension plan.

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