Pension Valuation for Divorce may be unnecessary.
Do you meet the criteria?
Worried about having a pension valuation of your CSRS, FERS, Military or public service (PERA) pension and annuity assets professionally valued due to a pending divorce? Well, maybe you don’t have to worry! Wouldn’t that be nice for a change?
Pension valuation for defined benefit plans such as CSRS or FERS typically involves an actuary or a qualified pension valuation expert prepare a Net Present Value (NPV) analysis that illustrates to all parties in the divorce the value in today’s terms of the benefits you’ll receive in the future.
In general, though, pension valuation or Net Present Value (NPV) is not a concern for any of the following reasons:
- ==> You have no defined benefit retirement plans
- ==> You really don’t care if the distribution of the couple’s assets is equitable
- ==>You truthfully feel all retirement plans are alike
- ==> You think that the employee’s cash contributions to the plan are representative of it’s NPV
- ==> You’ll be able to justify the technical basis for your evaluation in case of a future appeal
- ==> You feel happy in your ability to explain the financial consequences of methods of division
- ==> You prefer relying on your malpractice insurance rather than expert knowledge
Of course, not everyone meets these criteria. So what do you do if you don’t?
Professional pension evaluation to the Rescue!
Before making important decisions such as dividing your assets for divorce I strongly suggest you get your pensions valued by a professional in the field. There are many to choose from. Retired Pay Analysis in Colorado Springs 719-475-7529 is a sponsor of this site. There are many others as well.
Just be sure that the evaluation specialist that you select can:
- ==> Explain the similarities and difference between Civil Service annuities and commercial pensions.
- ==> Has experience in explaining these technicalities to lawyers and clients on both sides of the case.
- ==> Can provide expert witness support in the event the valuation is questioned
- ==> Is supervised closely by a legal expert. Pension evaluation itself does not require a law degree but so many aspects of the process may depend upon the specific case that legal issues are sure to arise.
To give you an example of the importance of proper pension valuation, in a case I was acquainted with a divorcing couple was going to divide the husband’s Civil Service (CSRS in this case) by splitting the roughly $80,000 the husband had accumulated in mandatory wage deductions. $40K each … sounds OK?
Well that CSRS annuity had a Net Present Value (NPV) of well over $300,000. Would you care to be the attorney for the wife and advise her to take the $40K and then have her come back and claim her share was really $150,000? Didn’t think you’d want to be in that position. Hire an expert, especially if you are unsure of why the husband’s CSRS pension/annuity was really worth a third of a million dollars.
I another case I was involved with, the couple did not use attorneys to represent each other. They owned a home together worth, at the time about $175,00 and their equity as about $100,000 ($50,000 each). The husband was a soon-to-be CSRS annuttant. In addition to his regular “above mid-level” annutity, he was also entiteld to a significantly larger pension becuase of some special qualifications and programs he had particpated in over the years.
The wife said she was happy if the husband just signed over the home to her and made the morgage payments. In return she would sign an agreement that said she waived all claims to any and all of the husband’s retirement annuities. The couple proposed this agreement to the judge, the judge signed their papers and the husband paid off the mortgage with cash a few month slater. The woman feels she ‘got’ the house and $50,000 as well.
Knowing the NPV of his (several) Federal income streams at the time, I feel she got something else … screwed. Today a few years later, the husband is fully retired and enjoys an income of over $7,000 a month … the wife, not yet eligible for Social Security owns ahouse, now worth less than when they divorced and has a monthly income of $0.
As always remember that this site, although written by a retiree with substantial experience in the school of hard knocks, it is for personal, lay opinions and informational purposes only. If you have a legal question you should seek help from a legal professional. If you have questions involving current or future values of pensions you need an actuary or competent pension valuation expert. If your questions are tax-related, seek a competent tax advisor. In other cases, I recommend the base chaplain.
Originally posted 2010-03-17 02:02:20. Republished by Blog Post Promoter