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Brandon M.
Brandon M., Family Law Attorney
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Experience:  Attorney experienced in all aspects of family law
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B. T. I asked you a question previously. hopefully you

Resolved Question:

B. T.

I asked you a question previously. hopefully you still have access to that. I wanted to ask about valuation in division of assets regarding my 401k and my wife's pension (a professional's pension - a 403b + about %50 or so of her highest salary as income for the rest of her life).

I estimate her pension to be roughly 50K per year
my current 401K is 500K and not sure what worth will be when I retire, as I'll probably have to stop contributing such a high % of my salary after a divorce - as I'll need the income. She has 100K in a 403b retirement as well.

How is the pension valuated? do I credit half of the expected income assuming certain number of years collecting on pension? (ie, 10 years times 50K = 500K value, or some average years like 20 years times 50K = 1M)??


Also, how is my 401K valuated - at current value or some estimated future value?

I am thinking to negotiate a wash - leave each of our retirement situations alone and divide house and all other assets, but if the pension is highly valuable - like the 1M case, then I am better off allowing division based on valuation as it is potentially more valuable than even my future 401K worth.


There are also health benefits as part of her professional retirement - do I add that to valuation? (I have no health benefits coming).
Submitted: 2 years ago.
Category: Family Law
Expert:  Brandon M. replied 2 years ago.
Hello again:

I do have access to our last exchange and I reviewed it briefly. I also have a vague recollection of the exchange. I was somewhat surprised to see your first question regarding valuation of the pension because I understood it to be addressed in our first exchange. I will repost the relevant part and I will invite you to let me know if my answer is not clear. I hope that I did not fail you the first time.

To answer your questions:

Pensions are not quite divided by a straight 50/50 split of the portion earned during marriage. Consider this scenario:

Husband and Wife are married from 1980-2011. Wife contributes to her pension from 1991 through her date of separation. Intuitively, since the pension was earned entirely during the course of the marriage, the pension earned during the marriage would be divided 50/50... but that would shortchange Husband. If wife continues to work at her job and contribute to her 403b, the value of the portion of the pension earned during the marriage would continue to increase in value. So, for example, if the buyout value of the first 20 years of the pension was $100,000 in 2011, husband's 1/2 portion would be worth $50,000, but if wife kept working (for example) for another 10 years, the buyout value of the first 20 years of the pension would increase (for example) to $150,000, so even though Husband's overall share decreased from 1/2 to 1/3, the value of his share increased from $50,000 to $75,000.

To get the answer, lots of factors have to be taken into consideration, including the age of the parties, the years of service, the present value of the pension, and the terms of the pension. Some plans will perform these calculations for its members upon request; but when they are not, a valuation expert must be independently hired to get an accurate estimate (usually a forensic accountant).


A 401k is valued based on it's present value.

Health benefits included as part of a professional retirement plan are considered an "asset" for purposes of property division and equalization. In other words "yes".

Let me know if clarification is needed. Thank you.
Customer: replied 2 years ago.
B.T.

Thanks - If i've read current and prior response correctly and understood, I am thinking you are addressing the 403b account portion of pension only. There is a 403b $ amount (use 100K as example) and $ are contributed into it each month like a 401K and the money is put and managed into mutual funds. But apart and in addition to this, the pension pays out % of highest annual salary at retirement (which is sliding scale on years of service, and she plans to retire inside of 5 years)...so as example, an annual payout of 50K every year - above and beyond the value of the 403b savings portion of retirement. (she is a teacher)

Because that annual salary payout (nothing to do with the 403b) is coming in the future - is it part of what will be considered an asset to divide? I ask because its total sum payout over 20 years will be quite a lot, compared to the money in the 403b savings account at its current value.

So I am still unclear about annual salary payout that starts in say 5 years hence and continues until death - IF and how that is valuated in the division of assets.

As for my 401K valued at present value (and her 403b for that matter, assume-ably valued at present value) - am I forced to liquidate/withdraw from the 401K to payout/settle the division of assets? Isn't there penalty for withdrawal of those funds?

How are her health benefits coming with retirement valued?

Expert:  Brandon M. replied 2 years ago.
I apologize... I did make a bit of an edit there... I blame the late hours for my lack of clarity. The fact is that it is valued the same way for the same reasons. The legal foundation for the creation of the accounts are different, but for the individual they operate exactly the same and that is why they are treated the same way. So yes, as years of service add to the ultimate payout, the individual years of payout increase in value. If the spouse earns more and more with each year of service, the valuation is based not just on the present value but the future value as well.

How that is valued---frankly, accounting wizardry. I can't do it and I don't estimate that anyone can without an accounting background and experience in pension valuation.

So, 403bs and non-403b pensions, the valuation considers how the pension's value will change in the future. For 401ks, the valuation is based on the present value.

The divided portion of the 401k can be transferred to a 401k in the spouse's name using a Qualified Domestic Relations Order (QDRO) so that there is no penalty for early withdrawal.
Customer: replied 2 years ago.
B.T.

Yes, as for the pension salary payouts...their value is known - average of the highest 3 years of salary - that is basis for annual payout amount at retirement.

Do you think a local lawyer consultation is viable to provide me a preview into such valuation with any degree of accuracy or is a full featured valuation firm required? I see online services doing this, but with those, I'd have to have consent of my wife and many detailed inputs, so its not a preview/informational thing I can use to assess impact of divorcing. I want a ballpark to know how much this valuation would offset the simpler calculation of 1/2 my current 401K value, so as to soften the blow - 1/2 my 401K is huge impact now and at retirement.

So in this case, to illustratively depict the total retirement "package", value is 100K in 403b today, in mutual funds, plus a 50K per year payout for life (say 30 years, a total value of 1.5M) plus health benefits for life after retirement.

and for 1/2 of my 401K as QDRO amount - I assume I can deduct 1/2 value of her 403b mutual fund account - so, say 500K divide by 2 as current value of my 401K, minus 1/2 of 100K in her 403b = 200K QDRO?

thanks,

h
Expert:  Brandon M. replied 2 years ago.
I'm sure that it could be ballparked, but it would be a very big ballpark.

I couldn't follow your illustration. Perhaps you could expand a bit or explain differently? I saw a question mark at the end, and I'm not understanding how that is a question. Sorry!
Customer: replied 2 years ago.
B.T.

Illustrative values:

Her retirement:

-100K in 403b mutual fund retirement account.

-Expected 50K per year pension payout for life starting in 4 years.

-Full health benefits/insurance for life.

My retirement:

500K current value

Asset Division:

Mine - 500K divide by 2 = 250K - payed to her via QDRO

But, Question - Can I reduce the QDRO amount by 50K because I am eligible to get 1/2 of her 100K in 403b? That would mean 200K to her vs. 250K.

Hers:

Somebody valuates the future value of 50K per year for x years - e.g. if 30 years, its a total future payout cumulative value of 1.5M

Somebody values the value of health insurance for life - say 30 years beyond retirement

Question - I get some portion of the total value for both those future payout values? the 50K per year pension payout and health benis?

Question - some lawyer can ballpark that for me with some formula for my state - like let's say its %20 of total 1.5M lifespan value, that would be $300K - and I can net that value against my QDRO amount of 200K to be GETTING 100K to me rather than payout out 200K??

hope that is clearer.

h
Expert:  Brandon M. replied 2 years ago.
1. Question - Can I reduce the QDRO amount by 50K because I am eligible to get 1/2 of her 100K in 403b? That would mean 200K to her vs. 250K.

A. What matters is that each party ends up with the amount allowed to them under the law; if this can be accomplished by dividing the assets in a way that is more convenient to the parties, great. I have seen plenty of cases where the parties decide to each just keep their own retirement plans to themselves even though it is less than a perfect division simply because the inconvenience of trying to get a perfect split or dividing each retirement plan is not worth the hassle.

2. Question - I get some portion of the total value for both those future payout values? the 50K per year pension payout and health benis?

A. Under ordinary circumstances, each spouse would be entitled to a portion of the present and future value.

3. Question - some lawyer can ballpark that for me with some formula for my state - like let's say its %20 of total 1.5M lifespan value, that would be $300K - and I can net that value against my QDRO amount of 200K to be GETTING 100K to me rather than payout out 200K??

A. Exactly, but with that much money involved, neither one of you would likely want to put pen to paper based only on a ballpark estimate.
Customer: replied 2 years ago.
B.T.

Thanks. XXXXX 3...I've done more research and I'm more seeking to clarify what method and portion of her pension I would be eligible for. I found this: http://www.ct.gov/trb/lib/trb/formsandpubs/DivorceBulletin.pdf

Which describes that the pension portion to go to the other spouse (me in this case), is 1/2 of the % vested during the period of the marriage. Which is reportedly, duration of marriage in years divided by years of service teaching - which in our case is 16 yr / 22 yr = %72 - the portion of pension payout accrued during the marriage and therefore eligible to me in settlement. Doing that math, it would be about %36 of whatever dollar amount per year is the final annual pension payout. A rough guess is 50K, or %36 of 50K, is about $18K per year payed to the alternate payee (myself), throughout retirement, or to be negotiated as lump sum, or applied as a value against something else being split.

That's a very significant retirement benefit, overall more valuable than 1/2 my 401K...so the question and idea to confirm and understand is if I'm reading and understanding this right. Hopefully its something we can agree to "leave it be", on both sides, with perhaps some concession to account for the value disparity between our retirements applied to some other area of our assets.

So - sound about right?

thank you
Expert:  Brandon M. replied 2 years ago.
"About" right, yes. It still does not give you a buy-out value that accounts for the issue of an increase in value to the present vested portion based on future years of service. So it is far from perfect (in fairness, "perfect" is not perfect in these situations either since it necessarily involves making estimates).
Brandon M., Family Law Attorney
Category: Family Law
Satisfied Customers: 12235
Experience: Attorney experienced in all aspects of family law
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