Pensions are subject to equitable distribution in divorce. That means the money will be split between the parties as provided by New York law. While the rules for dividing a pension are straightforward, disputes can arise over how to value the pension and pay out the funds to the non-titled spouse. In that event, there are generally two options each with pros and cons.
How Are Pensions Treated in Divorce?
Under New York divorce law, pensions are considered passive assets. These are assets that increase or decrease in value due to external market conditions rather than through the efforts of the owner-spouse. Passive assets are generally divided equally in divorce.
What Are the Two Choices for Dividing a Pension?
The first option for splitting a pension is for the owner-spouse to pay out half of the amount received every month to the other spouse until the owner-spouse dies. In this way, the pension doesn’t have to be valued because as the value of the pension changes so will the monthly payments.
The second option is to have the pension valued during the divorce action and pay out half of the valuation in a lump sum from the pension via a Qualified Domestic Relations Order (QDRO) when the divorce is finalized.
Should You Choose Lump Sum Payment or Payment Over Time?
Opting to pay out a pension over time can be beneficial because the parties don’t have to pay the cost of an expert to value the pension. When a lump sum payment is made, an expert must determine what the pension would be worth if it was paid out over time and then discount that to its present value. The pension is then divided using that valuation with half going to each spouse.
How much the pension is worth depends on the expected lifespan of the person with the pension. Actuarial tables are used to determine life expectancy. The longer the individual is projected to live, the higher the value of the pension and payout to the non-owner spouse .
While expert valuations can be expensive, it may be cheaper to obtain a valuation and make a lump sum payment depending on the circumstances. Both sides need to consider which option results in a better outcome for them.
How Is the Pension Divided?
To provide a former spouse rights to the funds, the court must issue a QDRO. The QDRO states the amount from the pension the former spouse is entitled to get as part of the divorce. The pension plan administrator(s) must be sent the QDRO to execute the change.
Dividing a pension can be complicated, so it’s important to work with an attorney knowledgeable about these types of assets. If you are considering divorce, contact us to learn how we can help you achieve a positive result in your case.
