A pension appraisal is designed to place
a value on a moving target and is really only 100% valid on
the date that the appraisal is prepared (a very good reason
for attorneys to agree beforehand on both the appraisal date
and the report date, if they truly want to compare oranges
to oranges). The appraisal date should be easy in those states
that use the date of filing of a complaint as the marital property
cut-off date. If the marital property cut-off date is a separation
date or a divorce date, then, the attorneys should come to
agreement as to what the appraisal date will be for all of
the marital assets to avoid difficult future settlement negotiations.
The report date in defined benefit pension plans is critical
as most appraisers adjust the appraisal date value up to the
report date to reflect the actual present value. Also the available
annuity interest rate on the report date is usually used because
the appraisal date interest rate is no longer available and
does not reflect current value of a replacement annuity. When
attorneys try to work with actual dollar amounts there is often
room for errors (which we frequently see). Many attorneys (not
all) are number challenged when it comes to converting a percentage
interest in a pension into a specific dollar amount based on
a specific date. They also often fail to take into consideration
inflationary adjustments of pensions or post-cut-off date passive
increases of the non-participant spouse’s share of a lump sum
retirement savings account. The fact is they are exposing themselves
to potential liability if they are not certain about how to
arrive at the figures. Use the marital percentage and let the
plan provider figure out the amount and any adjustments, if
applicable. If you want, or have, to use whole dollars in the
settlement or, offset the value of one plan against another
to avoid preparing two QDRO’s, it is wise to have your retirement
valuation expert make theses calculations. Most will do the
calculations for little or no cost as long as it is not an
arduous task such as identifying the present value of the pre-marital,
separate portion, of a retirement savings plan based on passive
growth.
Hardball Discovery Tactics
While no attorney is expected to be a private detective
or a forensic accountant, what is expected is a “due diligence”
effort to identify and value all the marital assets when
you are handling a divorce case. In most instances this does
not present a real challenge as most divorcing couples live
fairly uncomplicated lives. They are usually aware of each
other’s personal assets as well as those that are clearly
marital. If you, or your legal assistant, conduct a proper
intake procedure, you should have a pretty good handle on
the assets which with you are dealing and what will be necessary.
Valuing houses, cars, furniture, jointly owned stocks and
bonds, etc. is pretty straight forward stuff. But employee
benefits can be a horse of a different color.
The easiest way to obtain employee benefit information is
to get the employee/spouse to sign a release form directed
to his/her employer(s), both past and present. But many attorneys
fail to do this. They may ask opposing counsel for his/her
client’s pension information and the information is provided
as requested. But the attorney representing the non-participant
spouse failed to ask about any defined contribution plans
in which the employee might also participate. And nothing
was asked about deferred compensation plans, which are offered
by many companies and government agencies and in which the
employee/spouse may be a participant. If there are no records
of requests being made for the overlooked assets, there is
no fraud on the part of the employee/spouse who failed to
provide the information. The onus for failing to include
all of the employee benefit assets in the distribution falls
back on the attorney who failed to ask for them.
Your greatest liability exposure in a divorce case is the
failure to identify and include all the retirement assets.
In many cases theses assets can be extremely valuable. Because
of this, you should retain complete control over the gathering
of retirement benefit asset data. Don’t expect the plan participant
to voluntarily turn over all of his or her benefit documents
to you. In many cases (if not most), the non-participant
spouse is unaware of all of the retirement benefits
the participant spouse may be accruing. Some pension valuation
companies will gather the information for you for an extra
fee but this is often time-consuming and you are never sure
of the thoroughness of their task. You must maintain control
of the discovery process if you are doing everything to protect
the interest of the client and yourself. Never rely on
the participant or his/her attorney to provide the retirement
data.
In every divorce case you handle, always ask both parties
about past and present employment. Ask about military service
and particularly always ask about National Guard or Reserve
participation. In the past 15 years reserve military active
duty has dramatically increased and with it the value of
the pensions they are accruing. If one of the parties worked
for a company in the past for more than 5 years they may
very well have an accrued pension benefit that pays out at
age 65 and has a present value which needs to be included
in your settlement negotiations.
So, the rule of thumb is:
1. Upon opening a case, ask your opposing counsel
to have his or her client sign a release form so that you
may deal directly with the employer/benefits provider.
(A release form that you can use in all your cases is included
at the end of this newsletter).
2. If you do not receive a signed release form within
two weeks of requesting it, file a discovery motion addressed
to the employer(s) using the language in the release form.
RETIREMENT ASSET RELEASE FORM
I, ________________________________________, do hereby instruct
a representative of
(Plan Participant - printed)
____________________________________________________________________________
(Name – address – phone # of benefits provider)
_____________________________________________________________________________
to cooperate fully with ___________________________________________________________
(Name
of attorney - address - phone #)
_________________________________________________ or his/her
designee and answer any and all questions relating to my
pension plan or any other retirement or deferred income plans
in which I participate. I also request that you furnish this
individual a current plan booklet and a current accrued
benefits statement, and a statement as of ___________________________,
(Marital
Property Cut-off Date)
of all of my accrued retirement benefits including any defined
contribution, defined benefit or deferred compensation plans
in which I am a participant. The defined benefit plan statements
should detail the accrued vested benefit payable to me on
my normal retirement date along with a statement of projected
pension benefits, including supplemental benefits, if any,
payable to me on the earliest date that I may receive them
on an actuarially unreduced basis (based on my current income)
assuming continued employment to that date. If my benefit
is contingent upon my classification or job level or contribution
level please so state and advise what that may be. Also,
please provide a statement showing my service computation
date (first day of employment), dates of all breaks in service
(if any), my current salary and my annual salary for the
past five years, the legal names of the plans in which I
participate and their addresses and the name, address and
telephone number of the person to be contacted if additional
information is needed. I authorize that person to answer
all questions incident to this request. The defined contribution
plan statements should show my current plan balances as well
as my account balances on
____________________________ and on ____________________________.
(Marital Property Cut-off Date)
(Date of Marriage)
_________________________________________ ______________________________
Signature of Plan Participant
Today’s Date
_____________________________________ __________________________
Date of Birth
Social Security #
______________________________ ___________________________
Witness # 1 - Signature
Witness # 2 - Signature
______________________________ ___________________________
Witness # 1 - printed
Witness # 2 – printed
Mr. Commerford has been active in the valuation
of pensions and the preparation of Domestic Relations Orders
for his attorney clients since the founding of LawDATA, Inc.
in 1984. He has presented Continuing Legal Education Sessions
dealing with the valuation and distribution of retirement assets
incident to divorce cases for State Bar Associations throughout
the country and written many articles on the subject for legal
publications.
If you have any questions or ideas for upcoming
articles you can reach Paul Commerford at paul@lawdatainc.com.
