Equitable Distribution of Pensions in New Jersey
At the time of divorce, all marital assets and debts are equitably distributed, including retirement benefits that were earned during the course of the marriage. In today’s society, retirement benefits are usually one of the most valuable assets a couple has and an important part of the equitable distribution negotiations.
Pensions are one form of retirement benefit that are subject to equitable distribution. They are classified as a defined benefit plan, meaning the benefit will be paid out at a determined amount upon the participant’s retirement. In relation to equitable distribution, it does not matter that the benefit is deferred (will be paid at a later date), as long as the benefit was earned during the course of the marriage, it is a marital asset and is subject to distribution at the time of divorce.
How are pensions divided?
There are generally two main methods that are used to distribute a pension:
♦ Present-value offset distribution– Utilizing this method, the pension benefit is valued based upon the assumed date of retirement and it is then discounted to determine its present value. The nonemployee spouse then trades his/her interest in the pension for a cash lump sum or another asset equal to the present value of the employee spouse’s pension. In other words, the employee spouse ends up keeping his/her entire pension, and the nonemployee spouse receives another asset equal to his/her interest in the pensionholder’s benefit, and waives his/her interest in the pension. When this method is utilized, it is necessary to hire an expert that can calculate the pension’s present value.
♦ Deferred benefit share – Utilizing this method, distribution of the pension benefit to the nonemployee spouse is postponed until the pension matures (is payable to the employee spouse). At the time of distribution, a few things must be calculated. First, the pension’s marital portion must be determined, which is calculated by the Plan by formulating a fraction (the numerator is the number of months that the parties were married during the employee spouse’s participation in the plan. The denominator is the total number of months the employee spouse participated in the plan), and then multiplying this fraction by the employee spouse’s final pension benefit. Once the marital portion is calculated, it is then multiplied by 50% (or whatever share has been agreed upon between the parties or ordered by the court in the Final Judgement of Divorce as part of equitable distribution) to determine the nonemployee’s payment amount.
In order to effectuate a pension division, a Qualified Domestic Relations Order (QDRO) needs to be prepared. A QDRO is a court order, signed by a judge, that is sent to the pension plan administrator instructing how the Plan should distribute the employee spouse’s benefit to the nonemployee spouse (alternate payee). The QDRO must contain certain specific information, such as the participant and alternate payee’s name and last known mailing address, and the amount or percentage of the participant’s benefits to be paid to the alternate payee.
If you are thinking of filing for divorce or have been served with divorce papers and would like to speak with a divorce attorney, please contact The Law Office of Jill Jedrusiak, LLC at (732) 719-2202 or visit our website at www.jerseyfamilyattorney.com.