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March/1/2012

When Settling a Divorce Case Be Sue to Cover All Bases Regarding a Pension By Paul W. Wolf

From the March 2012 Newsletter)

WHEN SETTLING A DIVORCE CASE BE SURE TO COVER ALL BASES REGARDING A PENSION
By Paul W. Wolf, Esq.

A pension is typically one of the biggest assets in a divorce proceeding. Simply stating in your divorce settlement, that “the pension shall be divided pursuant to the Majauskas formula”, is not sufficient as it neglects to address many significant issues that can negatively impact your client.

Without getting into too much detail, you should be aware there are two ways that a spouse receiving a marital share of a pension can receive their monthly payment. The explanation below assumes that your client is the wife receiving a share of the ex-husband’s pension.

1) A separate interest – which allows your client to receive pension payments for as long as she lives instead of for as long as the ex-husband lives. The pension plan will do an actuarial analysis of the wife’s life expectancy, which may reduce the monthly amount she receives. While the monthly payment received by the wife may be less, the benefit is that she will receive payments for as long as she lives. The death of the ex-husband will not cause the wife’s payments to stop or decrease. As a separate interest the wife has more flexibility as to when to start receiving payments as she is often allowed to start receiving pension payments once the husband reaches his earliest eligible retirement age whether he retires or not. Under a separate interest, the wife will not typically share in any post retirement cost of living increases received by the husband.

2) A shared interest – your client has to wait until the ex-husband starts his pension payments before she receives her share. If the ex-husband predeceases the wife, the wife’s pension payments will stop. When the pension payments stop due to the ex-husband’s death, survivor benefits will begin; however survivor benefits are typically 50% of what the wife was receiving under the pension. Utilizing a shared interest approach allows the wife to receive a portion of any post retirement cost of living increases if this is stated in your divorce settlement.

There are pros and cons to utilizing either method that an attorney experienced in drafting QDROs can address. Some pension plans such as government plans do not allow receiving pension payments as a separate interest. To protect your client, the divorce settlement should contain language stating your client has the option of utilizing either the separate interest or shared method to obtain their share of the pension. This way both options are left open for your client to choose from.

If the divorce settlement fails to specify your client is to be treated as a surviving spouse for any and all pre-retirement death benefits, your client may lose his or her entire share of the pension upon the pre-retirement death of the pensioner.

The failure to include pre-retirement survivor benefits in the divorce settlement may cost your client thousands of dollars and may cost you as well by way of a malpractice claim. If the divorce settlement is silent as to the sharing of early retirement subsidies and cost-of-living increases, your client will lose out on funds which over time can add up to be significant.

Utilize the following language (written from the perspective of your representing the wife in a divorce action) when putting your divorce settlement on the record to protect your client and yourself from any malpractice claim:

• The Wife shall receive 50% of the marital portion of any and all of the Husband’s pensions as determined by the formula established in Majauskas v. Majauskas.

• The Wife shall be entitled to obtain her marital share of the previously mentioned pension by utilizing either a shared payment method or a separate interest method.

• Regardless of whether the Wife utilizes a shared payment method or a separate interest method she shall be treated as the surviving spouse for any and all pre-retirement survivor or annuity benefits and receive 50% of the marital portion of these benefits as determined by the formula established in Majauskas v. Majauskas.

• If the Wife utilizes a shared payment method she shall be entitled to receive 50% of the marital portion of any early retirement subsidy or post retirement cost of living increases received by the Husband as determined by the formula established in Majauskas v. Majuskas.

• If the Wife utilizes the shared payment method she shall be treated as the surviving spouse for any and all post-retirement survivor or annuity benefits and shall receive 50% of the marital portion of these benefits as determined by the formula established in Majauskas v. Majauskas.

If you make the above points part of your standard procedure for handling divorce cases you will be providing great service to your clients and protecting yourself from future malpractice claims at the same time.

Paul W.Wolf is a sole practitioner who concentrates his practice on drafting QDROs. Paul is happy to answer any questions you may have on one of your cases at paulwolf2@gmail.com or (716) 435-4976






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