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People often work for the better part of their adult lives so they can look forward to retiring one day. Divorce can throw a shadow over your retirement prospects - after all, an important part of the divorce process is dividing marital assets.
Retirement accounts, including government pensions, are generally considered marital assets. Even if you started working at your job before you got married, any contributions to a pension account - from you or the government - after the marriage began will be considered marital property. Pension accounts must be valued and then divided, which can present significant challenges during the divorce process.
A pension is different from other financial instruments, such as a 401(k). A 401(k) has a set amount of money, which grows over many years as employees and employers pay into it. After retirement, a retiree could spend down the entire balance of a 401(k). In contrast, pensions are a set amount of money paid to an employee after they retire for the remainder of their lives. Valuing a pension is a difficult and somewhat grim endeavor because it is not possible to predict how long the recipient will live.
There are several ways to determine the value of a pension, and a qualified financial professional can help you understand which method makes sense for your pension. The three e most common methods used during divorce are:
The GATT method - GATT stands for “Group Annuity Mortality Tables.” The GATT method estimates the value of a pension based on the recipient’s life expectancy and the interest rate for a 30-year U.S. Treasury Bond.
The PBGC Method - The PBGC uses actuarial information from the Pension Benefit Guaranty Corporation, an organization dedicated to helping people manage their pensions.
The Life Expectancy Method - This approach is perhaps the most straightforward of them all, and estimates the value of a pension based on how long the recipient is likely to live and, therefore, the value of the benefits they are likely to receive.
After a pension has been evaluated, it must be divided as part of the marital asset division process. Sometimes it is simplest just to allow the pension recipient to keep the entire value of the pension while the other spouse gets marital assets of equal value. Spouses may also decide to split pension payments once the recipient retires. A Qualified Domestic Relations Order (QDRO) tells the pension plan administrator how to split payments between spouses so one spouse does not have to rely on the other to give them their share of the payments.
Many people are worried about the long-term impact of divorce on their finances. At Law Office of Martoccio & Martoccio, we will help you understand your options and help you make educated decisions so you can be prepared for your life after divorce. Our experienced, compassionate DuPage County divorce attorneys are here to make the divorce process manageable and straightforward. Call our offices today to schedule your complimentary consultation at 630-920-8855.