You Don’t Have To Get Gray Hair Figuring Out How To Divide A Pension
If divorce property settlement was easy, then people wouldn’t need attorneys. Fortunately for the family law industry even amicable divorces can get difficult when trying to figure out just how much each person deserves. Most assets can be valued pretty easily: the balance in a savings account, the Blue Book value of a car, or an appraiser’s evaluation of a set of jewelry. However some assets, such as pensions, are more complicated.
Note we are talking about pensions and not retirement accounts–defined benefit plans rather than define contribution plans. A retirement account can be valued by simply looking at the balance on a certain day. However pensions, due to the fact they are paid monthly from retirement until death, can’t be evaluated quite so simply. For equitable distribution the divorce software must be able to consider several important factors.
- Coverture Factor — How much of the pension was earned during the marriage? A spouse is typically not entitled to pension value earned before the marriage date. At its simplest the coverture factor is (marriage years) / (pension years). So if one spouse has been paying into a pension for ten years and the couple has been married for eight years then the ex would be entitled to a portion of 8 / 10 = 80% of the pension.
- Life Expectancy – The value of a pension is ultimately the total value of the payments that will be made over the lifetime of the retiree. No one can predict how long someone can live but estimates can be made based on typical life expectancy. Two common life expectancy charts used in divorce planning software are UP-94, which is based mostly on the life expectancy of federal civil servants, and RP-2000, which is based on a larger population. Attorneys must also decide whether to use gender-specific or unisex tables.
- Interest Rates – The rate is used to determine the present value of future money, adjusting for changing value of the balance over time. Not only must a reasonable value be chosen but attorneys must also decide whether to use the same value or different values for pre- and post-retirement years, as people typically invest more conservatively after retirement than before
- Cost Of Living Adjustment – Will pension payments automatically be adjusted for the cost of living? If so this must be entered into the divorce legal software so it can correct for the true payments over the retiree’s lifetime.
Pension value calculations are complicated but can be handled at the click of a button when using fully-featured family law software like Divorce Financials. Download a demo of any of our family law legal management software tools and discover how much faster and more accurately you can calculate fair divorce settlements.