Pensions in DivorcePensions, particularly the portion of a pension earned by either partner during a marriage, constitute an asset to be regarded in the disposition of marital property during a divorce. How to best place a value on this asset? With respect to a defined contribution pension plan, such as a 401(k) plan, it is a straightforward task to place a value on a person's account within the plan. One needs simply to look at the last monthly or quarterly statement of the account. Defined benefit plans, however, known as traditional pension plans, typically define a benefit as a monthly amount payable in the future at some defined retirement age, such as age 65. Sometimes reduced pensions are available at earlier ages such as 55, 60 or 62. It is not a straightforward exercise to place a lump sum monetary value on such a future benefit – one that can be paid in different amounts, commencing at different ages, and usually for the person's lifetime. The US Congress passed the Retirement Equity Act in 1984. This law provides for Qualified Domestic Relations Orders (or QDROs) that can be used by a court to split a pension benefit or account between married partners, effectively dividing the pension without the need to place a monetary value on it. This is common practice in family law today, and makes good sense in most divorce settlements. There remain situations though, in which a simple 50/50 QDRO may not be in the interest of both parties in a divorce. Perhaps there are other assets within the marriage that cannot be easily split, such as homes, trusts and other real property. In these cases, it may be best to determine the monetary value of a future pension benefit so that it may be offset against the value of other marital property. In some cases, one party or the other, or perhaps both, will retain the services of a qualified pension actuary to determine the actuarial present value of the future pension benefit. The actuary will need to be provided with all materials relevant to the pension, such as recent personalized plan statements and the plan's summary plan description (SPD). The actuary may require a signed release allowing him or her to obtain information directly from the pension plan's sponsor. Finally, note that the monetary value of a typical pension benefit payable in the future can be significant. A $2,000 monthly benefit payable for life beginning at age 65 can have a value of $100,000 to $200,000 for a person in his or her fifties today. It's worth the peace of mind to know what it's worth. -- George S. Ludwig, FSA, EA
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