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Dividing a Pension with a Present Value Calculation

By Attorney and Mediator Julia Rueschemeyer

Many public employees have pensions, which promise a future monthly benefit that continues until the pension participant dies. The part of the pension that is earned during marriage is generally considered to be marital property. While it is easy to divide a 401k-style retirement plan—you simply divide the account balance in two—it is more complicated to divide a pension.

There are two ways to divide a pension. One way to divide a pension is to divide the future monthly payments when they begin, at retirement. The divorce agreement and an associated QDRO spell out the amount of money that should go to each ex-spouse when benefits begin, or they give a formula that will be used to calculate the exact payment for each ex-spouse at retirement. In this method of sharing a pension—sometimes referred to as the "deferred distribution method"—no money changes hands at the time of divorce. This is the most common way of sharing a pension in divorce.

A second way to divide a pension is for the pension participant to buy-out the other spouse at the time of divorce. As the divorcing couple divide marital property, the full present value of the pension goes in the pension participant's column. Marital property of similar value, e.g. home equity or other retirement accounts, go in the other spouse's column. Thus, if the present value of a pension is $300,000 and the couple have $300,000 in home equity, the pension participant can keep her entire pension and the other spouse can keep all of the home equity. This is sometimes called the immediate-offset method of pension division because it is done at the time of divorce ("immediate") and the pension value which is kept by the pension participant is "offset" by the value of an asset that the other spouse keeps.

How do you determine the present value of a pension? Imagine that you have a pension that will pay you $3000 when you turn 65. You could ask a person, "How much money would I have to pay you now to guarantee me monthly benefits of $3000 from age 65 until I die?" That person would think about how likely you are to survive a given number of years, how soon she would have to start making payments to you, how much money she could earn in interest before she had to start paying you, and the size of the monthly payment.

The present value of a pension is determined through an actuarial calculation. This calculation takes into account interest rates, how likely a person is to survive each year, the size of the monthly benefit, and how much time will pass before the benefits begin. Actuaries or accountants generally charge $175-$300 to do a present value calculation, and they generally take 1-3 weeks to do them. You can also do this calculation instantly with an online pension present value calculator for $50. If you have a person's birthdate, their retirement date, and the amount of their future monthly benefit, you can calculate the present value of their pension in 5 minutes.


Attorney Julia Rueschemeyer specializes in Massachusetts divorce mediation and Massachusetts QDRO and DRO preparation.

Attorney Julia Rueschemeyer can be contacted by phone at (413) 253-7484 or or Visit Web Site

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