{4 minutes to read} The most typical way a pension is divided would be through a Qualified Domestic Relations Order (QDRO). A QDRO provides that, at retirement, the marital portion of the pension will be divided in the way that you have agreed upon in your Separation Agreement, usually 50%. The marital portion is the part that accumulated during the marriage.
But you’re in mediation, so you don’t have to do what is typically done. Especially if the QDRO doesn’t address the strong emotions that I described which tend to arise in pension discussions.
Present Valuation
One thing that you can do to provide yourself with other options for settlement is to hire an actuarial company to compute a value for the pension, as of the date you agree to use, for valuing your assets.
Offsets
Then, when you have that value, you can decide if you want to offset it against other assets, such as the equity in your home; or other retirement assets, bank, or investment accounts. The owner of the pension (titled spouse) will be entitled to all of the pension and the other spouse will have all of the agreed-upon assets. (You may need to impact the assets being transferred for income taxes so that the values you’re exchanging will be equal after income taxes are paid.)
Partial Offset
Maybe there are not enough other assets to equal the value of the pension, or maybe the non-titled spouse wants some of the pension, even if it’s a smaller amount. You can do a partial offset by using a percentage of the present value against assets to the non-titled spouse who would then get a reduced percentage in the pension. It takes some high-level math to figure this out, so you might want to use a financial professional.
Knowing Waiver
After a discussion about both of your needs and interests in regard to the pension — and you have reached an understanding of why it is important to each of you — you should also discuss what your relative financial positions are likely to be at the time you expect to retire.
What if the titled spouse will be solely relying on the pension in retirement and the other spouse has separate property that will enable them to retire comfortably? Or maybe the titled spouse is much older and will be retiring soon, and the non-titled spouse feels that they will have much more time to build up their own retirement assets.
In those situations, the non-titled spouse may be willing to waive the pension in exchange for more support or another asset. This may not mathematically equal the value of the pension, and it should be thoroughly discussed as to why the waiver is occurring. For a knowing waiver, It should also be clear that the non-titled spouse understands the value of what they are waiving, their entitlement to the asset under the law, and has reality tested the effect of the waiver as to whether or not they can afford it.
As long as you are not looking at mediation as a zero-sum game and are both willing to engage in the kinds of discussions that can lead to understanding the other, you have options when you are discussing how a pension can be divided. And whether the result is having the marital portion of the pension equally divided by the QDRO, a full or partial set-off, or a waiver in whole or in part, the decision would be one knowingly made by you, and a determination which you can accept.