Under Florida divorce law, all marital assets and liabilities are to be distributed by the court. This is called ‘equitable distribution’ and carries a presumption of a half-and-half distribution of the net value (assets minus liabilities) of the marital estate. These values are generally determined as of the date of the filing of the divorce case. One question we are often asked in medium and long-term marriages is how the courts distribute pensions belonging to one party or another in a divorce. There are a number of different varieties of pensions, such as government pensions like the Florida Retirement System, the Railroad Retirement System, military pensions, etc.. This article will only cover the typical private sector employee retirement plan.
A pension is generally treated as any other marital asset – a house, a car, a bank account and brokerage account, etc. However, unlike these other assets the right to receive a pension may not vest for many years after the divorce is over when the pension beneficiary reaches normal retirement age. So, how does a court distribute the right to a future benefit? There are typically two ways to do so: A present value buy-out or by using a Qualified Domestic Relations Order (a ‘QDRO’). Both methods should require the use of an expert professional familiar with valuing pensions and, if appropriate, drafting of QDROs for that type of pension.
In a present value buy-out, the expert will determine the present value of the marital portion of the pension. This is particularly important if the spouse entered the pension system before the marriage and thus has a non-marital portion that in fairness is typically removed from consideration. On calculating the present value using what is referred to as a ‘coverture fraction’, the dollar amount of the asset can be distributed equally between the parties. The beneficiary often will use this number to buy-out the interest of the other spouse and thus keep all of the pension for himself or herself.
The other option is called a ‘deferred distribution’ where the expert determines the amount of the benefit as if the beneficiary retired on the date of the final hearing, multiplying that amount by the percentage to which the other spouse would be entitled. This amount is then deducted from the retirement payments the beneficiary would receive on actual retirement. This usually involves the preparation of a QDRO which the court enters as part of the final judgment of the divorce.
Note that both methods can be used to determine pension rights in a mediation or collaborative family law negotiation setting outside of the courthouse. Our office has successfully distributed hundreds of pensions in divorces and is available to help you with your divorce.