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Divorce requires calculation of pension plan value

On Behalf of | Oct 8, 2019 | High-Asset Divorce |

When an Arizona couple chooses to end their marriage, one or both parties often have some form of company-sponsored retirement plan. Every retirement account represents a marital asset, and the departing spouses must divide the funds as part of the divorce. Calculating the value of a retirement account can become complicated, especially for defined benefit plans.

Defined benefit plans are also known as pensions, and they promise a set amount of annual retirement income to the plan participant. A participant’s life expectancy, rate of annual income, retirement age and the pension discount rate determine the valuation of the asset. This differs from a defined contribution plan, such as a 401(k) plan, that has an investment account with a value that can be measured at any time. A defined contribution plan does not guarantee a specific retirement income. Its value is strictly the amount of money available in the account.

Vital statistics provided by the U.S. Centers for Disease Control and Prevention provide guidance on calculating someone’s life expectancy. After it is found, the retirement age is subtracted from this figure. A mature pension’s lump sum value arises from the multiplication of the annual income by the result of life expectancy minus retirement age. The current value of a pension can be derived by multiplying the lump sum value by the discount rate.

The services of a family law attorney might protect a client’s rights during the valuation of marital assets in a high-asset divorce. An attorney might prepare necessary paperwork to authorize the distribution of retirement accounts. Legal advice might also make the client aware of tax consequences that influence asset values.