How Pension Benefits Can Be Divided

There are two methods for dividing pension benefits: “Immediate Offset” Approach and the "Deferred Distribution" or Reserve Jurisdiction Approach

The "Immediate Offset" Approach
Under this approach, the present value of the pension benefits are calculated and a determination is made as to that portion of the present value that was earned during the marriage. The court awards the pension to the employee spouse, and the nonemployee spouse receives other marital property of offsetting value.

Advantages

  • results in a final settlement of the distribution of the retirement benefits
  • continuing court enforcement and supervision is not required
  • parties to the divorce are free from future entanglements
  • nonemployee spouse does not have to establish and maintain contact with the pension plan administrator.
  • nonemployee spouse does not have to worry about and/or guard against the possibility of the employee spouse changing pension plan beneficiaries
  • nonemployee spouse does share, to some extent, the risk of the employee spouse not receiving benefits, because the present value of the pension benefit does reflect actuarial discounts for contingencies that might prevent realization

Disadvantages

  • employee spouse bears the brunt of the risk of not receiving the pension benefit
  • offsetting pension benefits with liquid assets affords the nonemployee spouse an opportunity for greater immediate economic gain.


The "Deferred Distribution" or Reserve Jurisdiction Approach
Under this method, the court retains jurisdiction and allocates the benefits between the parties when they actually paid.

Advantages

  • each spouse shares equitably in the risk of forfeiture
  • court can divide and distribute the pension benefits in terms of monies actually paid

Disadvantages

  • by prolonging the date of final distribution of assets, you can also prolong the hostilities between the spouses
  • employee spouse could choose certain benefit options that would have an adverse effect on the nonemployee spouse's portion
  • nonemployee spouse could forget about his/her interest in the employee's pension rights