Timothy C. Voit, Financial Analyst
If the military member is not in pay status (retired), be careful not to award a percentage of the benefit if the military spouse has less than 20 years of service. Although the military retired pay is still considered a marital asset, according to the military if there is less than 20 years there is not yet a vested benefit. A coverture fraction (proration) of the retired pay at retirement, based on years of marriage relative to years of service, might be more secure.
The issue of survivor benefits also comes into to play since not awarding survivor benefits, or benefits under the Military's Survivor Benefit Plan, would mean that the non-member former spouse's share is either forfeited to the plan or paid to someone else, a subsequent spouse of the military member. Also, tens years of marriage has to overlap with ten years of service for the non-member spouse to eligible for survivor benefits, not to mention actually receive direct payments from the military. Remarriage prior to age 55, of the non-member former spouse, suspends survivor benefits making them ineligible to receive survivor benefits if the military member predeceases the non-,member former spouse. Also a former spouse has within one year of the divorce to be deemed a beneficiary (surviving former spouse) or they forfeit survivor benefits.
Benefits can be awarded based on a percentage, fixed dollar amount, or a pro-rata share of the benefit at retirement, or a hypothetical formula if the components of the formula are given. Like the military, survivor benefits, or obtaining a survivor annuity should the plan participant predecease the non-plan participant spouse, could be a problem. Here again remarriage of a former spouse can forfeit survivor benefits. Unlike the military, there can be more than one surviving spouse, where any survivor annuity paid out can be apportioned. With regard to the survivor annuity, language must be in the original settlement agreement or judgment for OPM to honor or enforce survivor language in a subsequent order (COAP) dividing the retirement annuity.
Avoid accepting employee contributions into federal and municipal plans as the value, it is not. $40,000 in employee-only contributions does not fund or provide for $3,000 per month for life (for example)
Private Sector Pensions:
If the divorce occurs prior to retirement a separate interest may be secured whereby the former spouse of the plan participant receives their own share of the benefit payable over their lifetime. Caution is advised, however, in that it depends upon when the plan create the separate interest (at retirement or upon receiving an acceptable QDRO), which may require pre-retirement survivor benefit language.
Typically a pension can be valued or it is divided by a QDRO. Neither should make a difference if the value of the pension is determined correctly, meaning that whether a former spouse elects to receive their share immediately, by receiving cash or some other asset, or dividing it by a QDRO where they share in the pension payments should, in an economic sense, be the same. It should be, for both parties, just a matter of preference.
If in-pay status, be careful that should any portion of the pension benefit be comprised of a subsidized portion that it is addressed, otherwise a former spouse may not receive the amount they think they will receive. A subsidized benefit is an additional benefit often to encourage employees to retire early. That is, if someone accrued a monthly benefit of $1,000 payable at age 65 but the company offers that same benefit to the employee if they retire at their current age, the difference between the benefit that would have been paid, based on early retirement, and the $1,000 is the portion the company subsidizes. In a QDRO, if it should state that the wife is to receive 50% for instance, assuming the overall monthly benefit is $1,000/month, but instead she receives $300 per month, $600 may have been what accrued based on the participant's age but $400 is what the company subsidized. If the spouse receives less than they thought, the QDRO may not have addressed the issue of subsidized benefits. Supplemental benefits are benefits over and above the actual retirement benefit but may supplement the retirement benefit until the plan participant begins to receive Social Security. The supplemental benefit then drops off. If the intent is that a former spouse receives a share of whatever the pension plan might provide, whenever they provide, and if the benefit is based on all of the years of service (a portion of which may be considered marital), then perhaps supplemental benefits should be addressed not only in the QDRO but the settlement agreement as well.
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The opinions expressed here are not intended to provide legal or tax advice and does not, and should not, be a substitute to what applies based on a particular state's domestic relations law or based on the terms and conditions of the plan.
Tim Voit is a Financial Analyst and author of Retirement Plan Benefits & QDROs in Divorce, a CCH publication. Voit Econometrics Group, Inc. provides the legal community with pension valuations, business valuations, economic analysis, and QDROs. Tim Voit and his firm have aided attorneys and law firms in the drafting of Qualified Domestic Relations Orders (QDRO's) and other Orders relating to private, governmental, and Military plans. Questions, or general inquiries can be made by contacting Tim Voit at email@example.com.
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