{3 minutes to read} When thinking about what to do with payments from a monthly pension, there are at least three considerations that everybody should take care of in some way, shape, or form.
1. How Much Is Each of You Going to Get From the Monthly Payment?
a. The payment could simply be divided in half.
b. A payment could be in proportion to how much was earned during the marriage, compared to how much was earned before and/or after.
c. People may just agree on a dollar figure because it’s more convenient.
Unfortunately, a lot of times people stop at this point and don’t take into account the other two very important options that should be specified when settling on how a pension will be distributed.
2. The Employee Spouse Dies Before Retiring.
Almost every pension plan in the world has some kind of death benefit that gets paid as a lump sum upon the death of an employee before they retire. These death benefits can be of extraordinary value. I recently looked at one for a teacher in New York, who had only been teaching for about four years. The death benefit was over $500,000.
Again, there are a number of ways to handle this option. One would be to simply give the death benefit to the custodial parent since the money is intended to take care of the needs of the surviving spouse and children. Or the death benefit could be divided up in any way that they choose. The important thing is to make sure this option is covered.
3. The Employee Spouse Dies After Retiring.
If the couple involved doesn’t do anything, the payment will stop when the employee passes away. This is often not a good idea, because the other spouse needs the money to continue his or her standard of living.
Almost every pension plan offers some form of survivor benefit to the other spouse. That benefit can be the same amount or range from 25-50% of the monthly amount.
Depending on the terms of the individual plan, there is a “cost” associated with this option. For example, if the payment each month was $5,000 during the life of the employee, the total monthly amount to be divided between the couple would be reduced to perhaps $4,500 or $4,000 per month, depending upon which option they select. The monthly amount is reduced from day one and the couple has to agree on how to share that cost.
These are the major QDRO considerations, of which every divorcing couple needs to be aware, and also deal with, when working with pension plans. If you would like some further help spelling out your QDRO options, please contact me.
Steven L. Abel, Esq.
101 South Broadway
Nyack, NY 10960
(P) 845-638-4666
(E) [email protected]
