Pension Plan Division in Divorce
The court can take one of two paths in dividing pension retirement benefits. The first option is the cash-out method while the second option is called in-kind division. There is no default preference for either method.
If the cash-out method is chosen, actuarial evidence is presented to determine the present value of the pension. After that, the community property interest in the present value is determined based on the percentage of the party’s employment while married and before separation. Lastly, the court awards the pension right to the employee. The other spouse receives offsetting assets or an equalizing payment, or both.
If the in-kind division method is chosen, the percentage of the pension that belongs to the community is based on the spouse’s employment during marriage and before separation. One half of the community portion is then paid to the nonemployee spouse as payments are received. The court may supervise payments by reserving jurisdiction.
Cash-Out vs In-Kind
The cash-out method of division is often preferred when the value of pension rights is relatively small. Meanwhile, the advantage with in-kind division is that it avoids valuation problems; however, there is the matter of the court retaining jurisdiction and supervising future payouts.
The court also has the discretion to order the retirement plan to directly make payments to the nonemployee spouse even if he or she is not a member of the plan. However, the court is forbidden to order the retirement plan to:
- Make payments in any manner that will result in an increase in the number of benefits provided by the plan, or
- Make the payment of benefits to any party at any time before the member retires, except as provided by law or unless the plan so provides.