Pension Valuations and the Election of Survivorship Benefits

In any and all cases where a pension is to be equitably distributed between the parties, there are two questions that a family law practitioner must always consider: (1) How is the pension going to be valued and istributed;  and (2) Are survivor benefits going to be elected for the non-pensioner spouse?  The recently published decision in Evans-Donahue v. Donahue, which was drafted by the Honorable Steven J. Polansky, J.S.C., provides much needed insight into the answering of each of those questions when it comes to the equitable distribution of pensions.

With regards to the first question, there are two methods of valuing and distributing a pension plan: (1) the determination of the present value of the pension payments and then distributing the pension by immediate offset against another marital asset; or (2) deferred distribution of the pension through the drafting of a domestic relations order.  In order to effectuate a present valuation and immediate offset, the Court must determine the coverture fraction to properly determine the portion of the pension that is subject to equitable distribution.  As set forth in a footnote within Judge Polansky’s decision, a coverture fraction is the proportion of years worked during the marriage to the total number of years worked.  Barr v. Barr, 418 N.J. Super. 18, 34 (App. Div. 2011).  Determining the present value of the pension, once the coverture fraction has been determined, is generally straight forward for any financial expert to determine by use of a present value formula.  However, as the Court notes, present valuation is relevant only where the Court determines that a present value distribution of the pension is appropriate in the circumstances of a given case.  Claffey v. Claffey, 360 N.J. Super. 240, 256 (App. Div. 2003); Risoldi v. Risoldi, 320 N.J. Super. 524, 540 (App. Div. 1999).  Generally speaking, present valuation and immediate offset is best suited for cases where there are a number of other assets being distributed between the parties so that the non-pensioner spouse can receive his or her marital portion of the pension in the form of a larger portion of another marital asset being distributed.

The Court ultimately determined in the Evans-Donohue case that present valuation and immediate offset was not appropriate in that case based primarily on two considerations.  First, the marital estate did not contain sufficient assets to fund a present value distribution, as cautioned against by the Appellate Division in Claffey.  Second, the Court found that there was not sufficient, credible evidence or testimony presented to determine the present value of pension.  Accordingly, the Court determined that a deferred distribution was warranted in the matter, which leads to the next question: Are survivor benefits going to be elected on behalf of the non-pensioner spouse?  What happens to the non-pensioner’s interest in the pension post-divorce if the pensioner dies?

Whenever the Court deems a deferred distribution appropriate, the non-pensioner spouse is entitled to seek an election of survivor benefits.  However, if such an election is taken, then the amount of the monthly pension payments that the pensioner spouse receives will be reduced to provide those survivor benefits to the non-pensioner spouse.  Accordingly, the courts must weigh and balance the equities owed to each party by analyzing several factors: (1) the length of the marriage; (2) the length of anticipated years of service in the pension plan; (3) the age and health of the parties; (4) the pension options available to the party participating in the pension plan; (5) the financial impact of alternate pension options on both parties; (6) the availability of a survival benefit and its impact on the benefit received; (7) the cash value of the pension should the spouse participating in the pension plan die prior to retirement; (8) the availability of other assets to fund retirement; (9) the financial circumstances of both parties; (10) the availability of life insurance to protect the contingent benefit; and (11) any other factors which may be relevant in the case.

In the Evans-Donohue case, the Court ultimately found that it was not appropriate for the pensioner spouse to elect survivor benefits for the non-pensioner spouse.  The Court based its decision primarily on the fact that the coverture fraction (factors #1 and 2 combined above) weighed heavily in favor of the pensioner spouse retaining the full benefit of his pension because the majority of the worked years were outside of the marriage, either before the marriage or after the divorce.

The attorneys at the Law Office of James P. Yudes, P.C., are well versed in the equitable distribution of pensions and are, therefore, well prepared to answer those two important questions, along with any other that may arise.