“Someday” and “Maybe” Numbers: The Challenge of Dividing Retirement Assets – Part 1

{2:48 minutes to read}

“Hands off,” decries one spouse, “I worked for this, not you. Back off, you lazy sot!”

Retirement Assets

While I loathe being the bearer of what could be received as bad news: assets earned during the marriage are marital property and subject to equitable distribution. This includes assets earned directly from the efforts of just one party. This asset class includes retirement savings plans, 401(k)s, 403(b)s, and pensions (both defined contribution plans, and defined benefit plans). Often, these assets are complex and require professional valuations in order to glean their true, marital value.

One party might say: “Sure, I have a pension. It says I’ll get $1,800 every month, when I’m 62! I’m only 45 now, and can’t touch anything. Plus, what if I don’t retire? What if I lose my job or get laid off or worse? I might get nothing. How can I give you part of something I may never receive?”

This is true, however, we must widen our lens to take in the whole picture and the concept of…

Present Value

Participants usually receive pension statements that state projected monthly payments as of a certain age of retirement. In order to equitably distribute marital assets, we must calculate their “present value.” Present value means an asset’s current worth; that is, what it would have to equal today (e.g. $470,000) in order for it to produce a particular projected monthly amount (e.g. $1,800) down the road, say, in 17 years. The $470,000, not the $1,800 per month, is the amount we have to divide in a divorce.

Confusing? Yes. Particularly because we are no longer working with real numbers. We have entered the mysterious, worrisome and sometimes Escherian world of mathematical possibilities. A world of “maybe numbers” assembled from actuarial charts of life expectancy and statistical probability. To make sense of this world, we need the expertise of an actuary.

What are the actual values? What about the portion earned before the marriage or after we filed for divorce? And how do we divide these assets?

Excellent questions!! Stay tuned for Part 2!