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.
Resources & Tools
HOUSE OR PENSION -- Many women quickly grasp the idea of dividing the marital house, but the importance of the division of the pension may not seem present since its distribution may be several years away. The custodial mother of teenagers may grab at the marital home as a solution to a short-term problem but forget that down the road her share of her former husband's pension will be more important than owning a house.
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