Pensions, also called defined benefit plans, are less common in New Jersey divorces today than they once were. Still, if you or your soon-to-be-ex has a pension that accrued value during your marriage, it is not an element either of you can afford to overlook.
Retirement savings in general are often among the most substantial assets many people own. Yet some divorcing couples have a laissez faire attitude about divvying up the pension because it’s unlikely to be collectible until the pension holder reaches retirement age. But if you wait until your ex has retired before asking for your share of pension benefits, you may find it’s much too late to ask the court to modify your divorce agreement.
Pensions Less Common, No Less Important a Factor in Divorce
Defined benefit plans are those that provide an employee with monthly payments, starting when they retire and continuing throughout the remainder of their lives. The amount that is paid out is predetermined by a formula.
The percentage of private sector workers whose sole retirement account is a pension is about 4 percent, compared to 60 percent back in the 1980s. About 15 percent of private employers offer some combination of a pension and defined contribution plan, such as a 401(k), 403(b) and 457(b). Yet even the employers who do still offer traditional pensions (mostly those with a strong union presence) have been cutting hours, staffing, etc.
Traditional government pensions, however, remain commonplace, with CNN Money reporting more than 84 percent of state and local governments still offer them to workers. Even so, budget challenges facing many state governments has meant there often isn’t enough money to cover all future promised payouts, which could make accurately valuating it difficult.
How Divorce Lawyers Approach Equitable Distribution of Pensions
Before we determine how to divide pension benefits (or offset them with an award of other assets), our Freehold divorce attorneys need to analyze:
- When pension contributions were made. Most likely, contributions made to the pension prior to the marriage would be considered separate property. Similarly, contributions made after a separation with a spouse may also be considered separate property. A pension actuary can give us a sense of what part of the account balance of that pension should be attributed as marital property and how much should be considered the sole property of the pension holder.
- What is the actuarial pension value? We need to know what the pension is valued at before we can consider how much a person should get or what the offset of other assets should be. An actuarial valuation is a pre-tax valuation, so taxes will need to be calculated also.
- Deferred distribution v. partial or immediate offset. You might prefer to have your share of a pension paid out at the time of a divorce or immediately offset by some other asset. Alternatively, depending on its value and your circumstances, you might decide to defer distribution of your share to a later date. This is an important detail you will want to work out with your attorney and make sure the terms are explicitly laid out in the qualified domestic relations order (QDRO).
In preparing to valuate a pension, we’ll need to obtain authorization from the pension holder to get information directly from the administrator of the plan, as well as the summary plan description, any amendments or modifications, statements and other records.
Although it may sound overwhelming, our Freehold divorce lawyers are experienced in handling these types of cases and are committed to walking you through every step and securing an equitable outcome.
Contact us at (732) 810-0034 or email us through our website.