Divorce Pension Valuations
A pension plan operates as a valuable tax-deferred savings plan offered by an employer. If offered as a benefit, the employees of an organization may use this as a financial resource to support financial solvency throughout retirement. A pension plan grows when an employee adds to the fund(s) via a monthly contribution. This amount is often matched by their employer. Plan participants often take a calculated risk by contributing the maximum amount possible. The hope is to reap the greatest dividends at the time of becoming fully vested prior to voluntary termination or retirement. These funds accumulate on a tax-free basis until the employee retires. Upon retirement or vested separation, an employee may elect either a specific monthly income for the rest of their life or they may withdraw their pension in one lump sum. Because of their value and growth potential, pensions are an important consideration when planning the division of assets during the divorce process.
Because the value of a pension will fluctuate depending on how the stock market and other indexes behave, pension valuation requires a long-term view that takes interest rates into account. A few of the concerns that must be considered during the pension valuation process include length of time that an employee has contributed to their plan, how close they are to retirement, and whether a deferred distribution or immediate offset arrangement will be the most equitable basis for calculation. Given that pensions grow over time due to interest accruals, a fair pension valuation can be determined via an experienced qualified divorce relations order (QDRO) consultant such as Veralynn Morris.
What is a QDRO?
At Divorce Financial Solutions, we have the necessary pension valuation expertise. Our certified divorce financial analyst, Veralynn Morris, CDFA® is also a QDRO consultant with more than three decades of experience regarding pension valuations. She is available to serve clients with pension matters and navigating the QDRO process in the following Maryland jurisdictions: Frederick, Montgomery, Carroll, Washington, Howard and Garrett Counties.
A qualified divorce relations order (QDRO) is a binding legal judgment. It contains very detailed language regarding the assets and ultimate division of a retirement account, or accounts. The QDRO outlines how benefits are to be paid to a relative of the participant. A relative may be defined as a former spouse, child, or other dependent. The QDRO contains specific information such as the names and addresses of the participant, the alternate payee as well as either the percentage or amount of benefits that must be paid out. Confidential information such as the social security numbers of involved parties are transmitted separately to preserve the security of the parties and integrity of the transaction.
When a former spouse receives QDRO pension benefits, their benefits are paid out as if they had the same employment status as the participant. Alternate payees may elect to roll over their distribution into a qualified asset, tax-free or to receive the asset as a lump sum payout. It is also possible to blend these options depending on the type of assets and circumstances. An experienced QDRO consultant, such as Veralynn Morris, will be able to help each party understand the implications and long-term effects that a QDRO will have on future finances. This is helpful whether you seek her advice as the plan participant or the alternate payee.