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Valuing pension for a divorce
Old 05-02-2007, 02:52 PM   #1
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Valuing pension for a divorce

i am in the middle of a divorce and wondered if anyone can tell me how to figure out the value of my pension. My soon to be ex-husband is entitled to 1/4 of it but i'm at a loss on how to figure out what that would be.
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Re: Valuing pension for a divorce
Old 05-02-2007, 03:12 PM   #2
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Re: Valuing pension for a divorce

There are specialized services that do this (for a fee). Poke around on the web and I am sure you will find them.
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Re: Valuing pension for a divorce
Old 05-02-2007, 03:29 PM   #3
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Re: Valuing pension for a divorce

I would think your benefits department could give you that information since they will have to calculated it for the QDRO for the court. (Qualified Domestic Relations Order). Been there done that and have the scars to prove it.

Your 401k is also on the table as are stock options and any other financial "benefits" which have a defined value in current dollars.
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Re: Valuing pension for a divorce
Old 05-02-2007, 03:30 PM   #4
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Re: Valuing pension for a divorce

In my divorce and in my state, if you and your STBX and the associated attorneys could agree on a split of the finances, then the court would pretty much go along with it.

So one approach would be to contact the pension folks and ask them what the lump sum value is today, then see if your STBX would accept transferring 1/4 of that lump sum amount to him.

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Re: Valuing pension for a divorce
Old 05-02-2007, 03:53 PM   #5
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Re: Valuing pension for a divorce

The calculations aren't that difficult; it's the assumptions involved. It would be a quarter of the net present value of a future life annuity discounted to the present day. The discount rate used and age to retirement are important. The amount which you would currently be credited with rather than the amount you would eventually be entitled to. The start date and life expectancy would set the duration.
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Re: Valuing pension for a divorce
Old 05-02-2007, 04:35 PM   #6
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Re: Valuing pension for a divorce

Another thing that would affect it would be the pension choice she makes. I had a pension once that gave me a choice of a single life annuity or a couple of joint life annuities with the payout equal to 100% or 50% of the initial amount once the first person died. I dunno if the OP has such a choice, but I know that when I was valuing my pension this decision made a difference in the NPV.

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Re: Valuing pension for a divorce
Old 05-02-2007, 07:26 PM   #7
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Re: Valuing pension for a divorce

I used to work for pension actuaries, and they were hired by divorce lawyers to work out the value of the pensions. This was back when the earth was cooling and I was still young, so I'll report just what I remember...

They just used the formula that the pension itself used -- years of services x last three year's salary, or whatever. They usually ran a variety of calculations using various assumptions, as SecondCor521 points out -- full joint and survivor, half joint and survivor, etc. along with various assumptions as to how long you'd work -- 55, 60, 65, etc.

Then the lawyers argued about what number to use, and how it weighed against other factors (the house, the car, yada yada.)

One note -- I have a friend at work here who divorced recently. She traded away the house to her husband so that she could keep full rights to her pension once she retired. What did our Megacorp employer do this year? Tell us that at the end of 2007 they'd stop making contributions to the pension. She's not happy. So whatever the actuaries decide, it seems that you'll want to make your own calculation as to how likely the pension is to grow as you expect it to.

Good luck!

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Re: Valuing pension for a divorce
Old 05-02-2007, 09:34 PM   #8
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Re: Valuing pension for a divorce

My divorce was a little more congenial - no lawyers involved.
I assigned values to everything, she chose half based on
the assigned values. It semed fair to both of us.
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Re: Valuing pension for a divorce
Old 05-02-2007, 10:01 PM   #9
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Re: Valuing pension for a divorce

I would think you could get a pretty good estimate by pricing an equivalent annuity. You can find several at:
http://www.golio.net/My_Homepage_Files/Page13.html

under Section 5.4.
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Re: Valuing pension for a divorce
Old 05-03-2007, 05:19 AM   #10
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Re: Valuing pension for a divorce

Quote:
Originally Posted by CyclingInvestor
My divorce was a little more congenial - no lawyers involved.
I assigned values to everything, she chose half based on
the assigned values. It semed fair to both of us.
Ditto, you'll save THOUSANDS of dollars in lawyer fees. Lawyers, being slimy scum
sucking maggots will try to convince each of you it's in your best interest to fight
to the death. Tried to avoid the lawyers, otherwise you can easily blow 50K before
you know it.
Assuming no kids, just sit down, add it all up, divide by 2, try to not dip into the
retirement accounts (sell stocks!!! especially now!, sell house or take a 2nd mortgage),
but leave the 401k/IRAs alone if you can. Also, whatever you brought into the marriage
should be off the table.
good luck,
TJ
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Re: Valuing pension for a divorce
Old 05-03-2007, 06:22 AM   #11
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Re: Valuing pension for a divorce

Quote:
Originally Posted by CyclingInvestor
My divorce was a little more congenial - no lawyers involved.
I assigned values to everything, she chose half based on
the assigned values. It semed fair to both of us.
That is a great way to do it. It is kind of like the sharing deal with kids - kid one cuts the cake, kid two chooses the slice.
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Re: Valuing pension for a divorce
Old 05-03-2007, 07:49 AM   #12
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Re: Valuing pension for a divorce

Please see my PM. Potential value of pensions can be huge and writing an accurate QDRO ensures that you make the agreement you intended to make.

I agree with comments to limit input from attorneys - they have an inherent conflict of interest. That said, a good attorney can save you from making a technical error that will cost you in the long run.

Good luck.
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Re: Valuing pension for a divorce
Old 05-03-2007, 08:13 AM   #13
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Re: Valuing pension for a divorce

See your human relations office: in my DH situation with his ex, it was a straightforward math problem: take retirement formula as if retired that day and prorate half based on years married.

I was able to figure this, took me 10 minutes, but the court required an attorney to do it - he charged $400+ and we were within $1-$2 of each other.

I suppose if DH had had other assets he could have bought her out, but that was not the case. So, she will get a portion of his retirement when he retires.
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Re: Valuing pension for a divorce
Old 05-03-2007, 09:01 PM   #14
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Re: Valuing pension for a divorce

Teejayevans said: "Ditto, you'll save THOUSANDS of dollars in lawyer fees. Lawyers, being slimy scum
sucking maggots will try to convince each of you it's in your best interest to fight
to the death. Tried to avoid the lawyers, otherwise you can easily blow 50K before
you know it."


And what is your honorable profession, my man?
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Re: Valuing pension for a divorce
Old 05-03-2007, 09:05 PM   #15
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Re: Valuing pension for a divorce

Quote:
Originally Posted by brownds
i am in the middle of a divorce and wondered if anyone can tell me how to figure out the value of my pension. My soon to be ex-husband is entitled to 1/4 of it but i'm at a loss on how to figure out what that would be.
Ouch

he wants that 1/4??

What a jerk!

Hey it didn't workout sorry but I would never want or take any of my wifes pension if I happened to break up.

Ya know what I mean.?
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Re: Valuing pension for a divorce
Old 05-03-2007, 09:18 PM   #16
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Re: Valuing pension for a divorce

Quote:
Originally Posted by newguy888
Ouch

he wants that 1/4??

What a jerk!

Hey it didn't workout sorry but I would never want or take any of my wifes pension if I happened to break up.

Ya know what I mean.?
In my state, a 50/50 division of marital property is considered de facto (<-not quite the right legal term) fair. If any part of the pension was earned during the marriage, it would be considered marital property and thus subject to division.

Two things confuse me about the OP, though. Why only 1/4 and not 1/2? And what does she mean by "entitled"?

2Cor521
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Re: Valuing pension for a divorce
Old 05-03-2007, 09:44 PM   #17
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Re: Valuing pension for a divorce

How do the actuaries and laywers account for years of service in the pension as that's critical to
calculating the pension. Do they just say the spouse gets a certain fraction at retirement, I can see that as being an issue in acrimonious divorces where people just want to cut off all contact.

I was lucky in my divorce, we split all liquid assets 50/50, house proceeds, after tax stuff and flipped a coin to see who got first choice of houshold goods. I represented my self, she had a lawyer to file the paperwork, but we wrote our own separation agreement. She didn't want any of the pensions or 401ks, I told her to think long about that and to talk to her lawyer, she just didn't want the bother....I was 36 and she was 30 so maybe retirement seemed a ways off. Anyway 10 years later its almost enough for me to retire on now.
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Re: Valuing pension for a divorce
Old 05-04-2007, 12:37 AM   #18
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Re: Valuing pension for a divorce

Quote:
Originally Posted by none
How do the actuaries and laywers account for years of service in the pension as that's critical to
calculating the pension. Do they just say the spouse gets a certain fraction at retirement, I can see that as being an issue in acrimonious divorces where people just want to cut off all contact.
I think normally they calculate a lump sum value at the time of the divorce, so any increase in pension value due to years of service that occur after the divorce would only accrue to the pension holder and not the ex-spouse.

The spouse only gets 1/2 of that lump sum value (either from the pension itself or from other offsetting assets) at the time of the divorce, not 1/2 of the future pension benefits.

Of course people can write up any separation agreement they want, so they could entangle themselves that way if they wanted. I personally wouldn't. I know someone getting divorced now who is heading towards owning rental vacation property along with the ex-spouse-to-be, and is adding in all sorts of clauses about what happens if one wants to sell, or if one dies, and who gets to vacation there when, and so forth. I think it's going to be a nightmare personally.

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Re: Valuing pension for a divorce
Old 05-04-2007, 09:10 AM   #19
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Re: Valuing pension for a divorce

Quote:
Originally Posted by SecondCor521

Of course people can write up any separation agreement they want, so they could entangle themselves that way if they wanted. I personally wouldn't. I know someone getting divorced now who is heading towards owning rental vacation property along with the ex-spouse-to-be, and is adding in all sorts of clauses about what happens if one wants to sell, or if one dies, and who gets to vacation there when, and so forth. I think it's going to be a nightmare personally.

2Cor521
Agreed, I carn't imagine sharing a vacation home after a divorce, but as the Ben Stein thread implies the vacation home is now a necessity so maybe some folks just carn't give it up :-).

Now you mention it, its obvious that the pension would be valued at the time of the divorce and I assume its value
is accounted for in one spouse getting a greater portion of things like 401ks and house proceeds.
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Re: Valuing pension for a divorce
Old 05-04-2007, 09:41 AM   #20
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Re: Valuing pension for a divorce

if i were eligible to retire today, i would get about 1500 a month. A quarter of that is $375.

What would I multiply that 375 by? The number of months we were married or try to figure out how many years i would live until?

that is what is confusing me.

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