Pensions valuations are often a complicated and confusing subject during divorce planning. Additionally, there’s a cost associated with this process. That said, having a pension valuation conducted could very well be the best investment you make in your financial security during your divorce.
Let’s get started with the fundamentals by covering what a pension is, how it’s intertwined with marriage, and what a pension valuation looks like.
What Exactly is a Pension?
A pension is also known as a type of defined benefit plan. Your pension is created by your employer, and it ensures that you will be paid by your employer throughout retirement. The amount is based on many factors, like your salary, your life expectancy, and how long you’ve worked for the company.
Additionally, there are many details associated with your pension benefit, such as how you elect to have it paid out, which will affect the monthly payment amount that you receive. Some plans also have added benefits such as a cost-of-living adjustment (COLA). All of these factors will affect not only the monthly benefit paid out but will also affect the value of the pension during a division.
Public vs Private Pensions
With a private pension, you can still collect social security and your pension benefit. Public pensions like the State Teachers Retirement System (STRS) require the teacher to contribute in this way instead of paying into Social Security. As a result, these teachers will not be eligible to collect from Social Security and the STRS benefit. These social security rules such as the Windfall Elimination Provision and the Government Provision Offset may be applicable to your case. This can add complexity when it comes to dividing pensions fairly.
What Happens to Your Pension in a Divorce?
A pension is subject to division in a divorce – provided the benefit was accumulated during the marriage. This means your spouse may not be entitled to any gains from your pension that occurred prior to marriage. Most pension plans offer several different ways of dividing the pension benefit. Request your Summary Plan Document for further details about your plan and your options during divorce.
So When do you Actually Need a Valuation?
It’s worth noting that there are several different ways to split a pension during divorce. That said, many are opposed to splitting their pension. Determining how to split it is not only complex, but the pension benefit is often factored heavily into one spouse’s retirement plan. In short, it may be cleaner to leave one party with the pension, and offset this by allotting a higher percentage of the other assets to the other party (home equity, for example).
When one party wants to keep all of his or her pension, it’s time for a valuation.
Who Conducts the Pension Valuation?
The valuation is complicated, and it’s important you entrust this to an expert. This will typically not be handled by your attorney, but by a financial planning expert, like a Certified Divorce Financial Analyst®.
Alternative Divorce Solutions specializes in this. We can make this process clear and simple for you, so you can feel confident that due diligence is conducted, and the best possible outcomes are recommended to you. Contact us today, and we’ll help you get started.