Pensions are typically referred to as defined benefit retirement plans as they provide a guaranteed income according to a specific formula after retirement.
Defined benefit retirement plans are differentiated from defined contribution plans like 401ks, 403(b), and IRAs. Defined contribution plans have an actual number value of assets in them that can be cashed out whereas pensions have no cash out value and must be distributed per month (usually).
Because defined benefit retirement plans have no cash-out value, it is almost impossible to figure out what the whole value of the plan in order to distribute the value in a divorce. Defined benefit plans are based on a complicated of formula of how long you worked, what your position was, and what you contributed. Florida courts have found that “no recitation of formulae, considered in the abstract, could capture the variety of considerations necessary in order to do equity” Diffenderfer v. Diffenderfer, 491 So. 2d 265, 269 (Fla. 1986)
Despite the lament at imprecision in Diffenderfer most Florida divorce lawyers are happy to hire an actuary (a person who compiles and analyzes statistics and uses them to calculate financial values) to approximate the cash value of a pension. It is common for one party to want to keep their pension in its entirety in exchange for other assets like a house. In situations like this, it is important to have some expert assess the value of a pension.
This becomes especially complicated if the pension was earned both before the marriage and after the marriage. In this situation, the pension is both non-marital property and marital property. The determination of the value of the marital portion can be difficult for even an actuary.
Most pensions will be divided by a Qualified Domestic Relations Order (QDRO) wherein the pension creates a second pension for the other spouse of equal value. This means that if your pension was paying you $ 2000 a month and, through the divorce, the QDRO splits the pension equally, you’ll get a pension of $ 1000 a month and your spouse will get a pension of $ 1000.
A QDRO for a pension will factor in the non-marital versus the marital potions. A pension’s value is determined via a complicated formula, after all. The QDRO will just be one more equation in the formula.
A pension lasts a person’s lifetime. This eliminates the risk of running out of money if you live too long. The length of the awarded pension after a QDRO is almost always associated with the life of the person who had the original pension, not the person who was awarded part of the pension via QDRO through the divorce.
Some pensions cannot be divided by a QDRO (lots of Florida municipal pensions are this way). In this case, the court usually awards the former spouse the pension they would have received via QDRO by ordering the spouse with the pension to pay the other spouse that same amount in alimony. Rumler v. Rumler, 932 So. 2d 1165 (Fla. 2d DCA 2006)
Florida’s state retirement system provides a defined benefit plan or a pension. If the Florida state employee chooses to continue working after they are eligible for retirement benefits, the Florida state employee can take advantage of the Deferred Retirement Option Plan (DROP). DROP is system where the employee continues to work but his retirement benefits are paid into an interest bearing account that the employee can withdraw from in the future when the employee actually stops working. This allows the employee to avoid the tax penalty of drawing on a pension while still working.
DROP benefits (like anything else) are marital property in a divorce so long as they have accrued during the marriage. Pullo v. Pullo, 926 So. 2d 448 (Fla. 1st DCA 2006).
Contact my Naples, Florida office to discuss what will happen with your or your spouse’s pension