Dividing Pension Plans in Divorce

What's a fair way to determine the part of a pension plan to be divided, the marital or community portion?

CHICAGO - illiNews -- A pension or defined benefit plan, pays a monthly annuity for the life of the member/participant. Fewer and fewer are in the private sector, but in the public sector, many such plans continue.

When a member of such a plan divorces, the marital portion of the plan is divided, typically 50/50, using a special Order: QDRO or QILDRO.

How the marital portion is calculated makes all the difference. If the coverture formula is used, and the member continues to work and participate in the plan after marriage, the marital portion is not cut off at divorce. The actual figure that is the marital portion, cannot be calculated until the member retires.

At retirement, the total retirement benefit is multiplied by a fraction. The numerator of the fraction is the credit earned during the marriage. The denominator is the total credit earned. The longer the member works after divorce, the smaller outcome we get, but that the outcome is multiplied by the total monthly benefit at retirement. While the multiplier gets smaller, it is multiplied by an ever increasing amount.

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This formula is contained in many QDRO/QILDRO forms, but it is not the only way to divide a pension. A pension plan can be divided as of the date of divorce. Retirement benefit based on the member working only until divorce can be calculated.

The marital portion definition makes all the difference, but often, if it not defined at all, many divorce decrees simply stating that the alternate payee will receive half of the marital portion. Without a clear definition, the Court is likely to use the coverture formula.

The coverture formula has become something of a default position for QILDROs and QDROs in Illinois. Later years of service, those after divorce, are better paid and so result in a greater pension. Those years are only possible as a result of the earlier, lower earning years during the marriage.

Yet, if the member changes jobs, the former spouse gets nothing. Say one moves from the public to the private section. The new pension plan or 401(k)is completely the member's non-marital property.

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This is despite the former public sector employee is likely to commend a much higher salary in the private sector precisely because of his experience gained in the public sector during the marriage. Yet, no court would grant the former spouse an interest in this new retirement.

However, it could be argued that those that remained within the same pension plan are not treated equally or on par with those that moved to a different employer with a different retirement scheme.

Find out more: https://www.qdro.attorney/