Here are some tips for information gathering and decision making to get started in the area of retirement benefits in an Oregon divorce. It is very important to consult with a family law or financial professional in your area, and this article is meant to raise questions to better understand what to ask. It is not meant as a comprehensive or complete list as companies and plans change constantly. It’s also an extremely complex area of law, so it’s wise to use caution and obtain information from trusted sources in person before making decisions or signing agreements.
Traditional Pension Plan: Have you or your spouse ever worked for a government entity or been a member of a union? Even short periods of time are important due to the way pensions may accrue value, and often pay out over a lifetime, not to mention after death to a former spouse in some cases.
Have you seen a statement that mentions future monthly benefits or the word “pension”? These brief statements can be misleading and vague, and sometimes must be requested from the Plan and not routinely mailed out. The statement dollar figures are NOT representative of value for separation or divorce purposes. The actual value is typically much higher than what is stated, and PERS is a good example. It’s extremely important to understand:
1) Are you dealing with a defined benefit plan (pension)?
2) Are there survivorship annuity options?
3) What is the present value with and without the survivorship benefits?
4) Is the pension 100% marital or are there any pre-marital components?
5) Have you and your spouse been separated for a long period?
6) When would the pension pay out start and what are both spouses ages and health? Age and health can be a significant factor for planning and decision making.
To answer these starting questions, it’s strongly recommended to have a licensed actuary or pension attorney complete a present value actuarial analysis. This needs to be coordinated through your mediator, CDFA (certified divorce financial planner) or divorce attorney. I often co-mediate or collaborate with a neutral pension expert to help clients value pensions and answer questions for families. These tools help clients decide what makes the most sense to accomplish mutual family goals and to maximize benefits for long term planning. Often, there is a mutually beneficial method of dividing or offsetting a pension that meets both parties’ needs.
Or, once a valuation is done, perhaps the participant decides to retain a pension to keep it intact for future source of income, and instead offset it with another asset. There are tax implications and other factors to consider, so it’s important to evaluate the pros and cons of each alternative along with any risks. We also have software tools such as “Family Law Software” used in mediation and collaborative cases that can help analyze cash flow and asset allocation to help families make the best decisions. If done thoughtfully in the mediation or collaborative context, the process can be affordable and be done out of the litigation or court setting very quickly. In mediation and collaborative method, we also use a neutral professional to avoid the “battle of the experts” that litigation attorneys often end up with in court costing both parties far too much money, stress, and time.
Some divorcing couples oversimplify or completely overlook the pension piece, and I have seen PERS pensions worth almost $1 million be inadvertently waived by a party for various reasons. It can be fear of conflict, fear of cost to value or divide, fear of complexity, or just naivety on what a pension consists of. Most pensions (qualified under ERISA) are divisible by stipulated court order due to the separation or divorce in a very simple process called QDRO or COAP depending on the plan.
Your divorce mediator or attorney can help coordinate this piece for your family, so it goes smoothly and affordably. For example, a complete valuation of a pension is typically $400 flat fee. Cost to divide a pension is typically $600, and these fees are often shared by both parties equally.
Lastly, I have seen many instances over the years in practicing where a person divorced years prior has not followed through with the proper court paperwork to complete a pension division and unaware of this. This is another caution to work with an experienced family law specialist, whether it be an attorney mediator, collaborative attorney, or specially trained CDFA. Many areas of family law are designed for self-represented parties to navigate fairly easily through the court paperwork, but this is NOT one of them. Military and federal pensions have their own complexities and related benefits that are important to get specialized advice about.
Stay tuned next for PART TWO on Intel Retirement Benefits