Pension and Divorce Evaluations
Answers From The Expert

Pension and divorce evaluations are an important consideration for divorcing couples who have retirement assets, especially when determining whether they will be valued as an asset or as income.  The following question answered by our financial expert can help you understand more on the subject:

Kathy's Question:  I have been married 30 years. My husband is collecting both his 30 year Teamster pension as well as Social Security Disability. He receives 2 times as much as I receive at my job. Because he is collecting these pensions already are they considered assets or income and am I still entitled to 1/2 of the Teamster pension even though he is collecting it? Is it an asset or income?

Timothy's Answer:  The social security disability payments your husband is receiving would be considered income. The question you raised about a pension being considered income or an asset is a good one. You’ve stated that your husband is currently receiving a monthly benefit from his pension plan. This means he has a defined benefit plan, which entitles him to an annuity stream of income for the remainder of his life. This annuity stream of income should be valued as an asset when a couple is going through a divorce.

When a couple seeks a divorce, they must decide how to divide their marital property, which would include a present value calculation of the pension benefit. There are many ways to divide a pension. One method is to compare the present value of the pension to other marital assets subject to distribution in an attempt to “trade-off” the benefit relative to another. In this case, the pension holder retains the monthly benefit stream of income and the spouse would take another marital asset of equal value to balance off the distribution. 

Another method would be to divide the pension benefits using a Qualified Domestic Relations Order (QDRO). In basic terms, a QDRO is a written set of instructions that explain to a plan administrator that two parties are dividing pension benefits due to an equitable, but not necessarily a 50/50 distribution. If you choose this method, it is important to have your QDRO finalized and approved prior to the divorce so your rights to collect this benefit will be protected.

One more thing, state laws differ with regard to the issue of disability. In some cases, disability is viewed as a replacement of income and cannot be considered an asset until it is converted to a retirement benefit. In others, a disability benefit is considered property. We do not engage in the practice of law and therefore recommend you consult an attorney on all legal matters.

Timothy McNamara is a certified divorce financial analyst, specializing in the financial issues that couples and individuals face when their marriage ends. Having gone through a divorce himself, he is passionate about helping people understand and manage the complicated financial issues divorcing couples often face.

This column is not intended to take the place of professional advice, but rather to provide financial information about the various issues that arise in a divorce.  For specific recommendations concerning your situation, you should retain an experienced certified divorce financial analyst who can answer your questions based on the details of your case.  WomansDivorce.com, Timothy McNamara, and Tracey Manzi disclaim any liability from any claim arising from any information contained in this column. This column is not a substitute for professional advice.

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