Placing a cash value on pension plans in a divorce

On Behalf of | Oct 8, 2019 | High Asset Divorce

The number of gray divorces involving spouses over the age of 50 has increased sharply in recent years, and assets such as retirement plans are often the subject of fierce debate during property division talks. This is especially true in states like Texas with strict community property laws that require marital assets to be divided equally. Pension plans are often a thorny issue because they are significant assets that can be very difficult to place a value on.

Pension plans generally fall into one of two categories. The value of defined contribution plans is particularly difficult to assess because the benefits paid are based on how an investment fund performs. This type of plan is common in high-asset divorce cases, and experts are usually called in to put a value on them. Defined benefit plans are more straightforward as set monthly benefits are guaranteed from retirement age until death.

However, putting a cash value on a defined benefit pension plan still involves estimating how long the person receiving benefits will live and how much purchasing power their monthly payments will have years or even decades in the future. This is generally done by estimating life expectancy using government data adjusted for known health issues and then determining the current value of future benefits using an agreed-upon discount rate.

Spouses in a gray divorce may expect to rely on pension benefits to pay the bulk of their living expenses. This means that disagreements over their value may become extremely contentious. Experienced family law attorneys could seek to avoid disputes and costly legal battles by calling in impartial financial experts to help spouses to work through these issues. When these efforts are unsuccessful and further negotiations are likely to be unproductive, attorneys may suggest alternatives to court such as mediation.