Pensions, Divorce and Offset Strategies

More than twice as many men as woman have retirement benefits, and the benefits for men are generally much larger than those for woman. Women, therefore, find themselves in a position to trade spousal pension rights for other assets. When the parties have sufficient assets to do this, the offset method - trading the pension in exchange for, say, a mutual fund - may be more advantageous than a QDRO and a share of the pension.

The present value or cash out makes it easy to use the pension during settlement negotiations. This regime awards the non-employee spouse a lump sum settlement - or a marital asset of equal value - at the time of the divorce in return for the employee's keeping the pension. However, the non-employee spouse must know the present value of the pension to make this work to her advantage. The present value of a defined benefit pension cannot be ascertained by the projected monthly benefit.

Trading away a pension plan requires careful thought of both short-term and long-term considerations. For example, even if a pension is divided 50/50, the division may produce what are termed "disparate results" because the ages of the payee, the worker spouse, and the alternate payee, the nonworker spouse, are different (and often the latter is significant younger than the former).

When both spouses have pensions, each has latitude to use them for the horse-trading that happens in divorce negotiations. Just as Susan has a claim against Sam's pension at ABC Co., so Sam has a claim against her pension at XYZ Inc. Rather than dividing Sam's ABC pension and Susan's XYZ pension, he and she may decide to tradeoff another asset, for example, a portion of Sam's share of the marital home.



Suggested Reading
Pension Issues in Divorce Pension Issues in Divorce
When couples get divorced they must decide how to divide their property. Retirement benefits (pensions) often form a substantial part of the parties' total marital estate and many times are the largest single marital asset afforded the couple. Similar to other assets, pensions are typically divisible in cases of divorce to the extent that they are acquired during the period of marriage.

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WIFE’S DISADVANTAGE -- Women of all ages often go into divorces on a less equal footing than their husbands and, therefore, must pay particular attention to the long-term consequences of the division of the marital estate. Women may enter and leave the work force to the demands of child rearing, which lowers their contribution to their own pension plans (if they have them), and they may, for the same reason, juggle low-paying, part-time jobs that together yield a living wage but one without benefits and certainly no pension.

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