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Issues involved with dividing up a pension in a divorce

On Behalf of | Mar 11, 2020 | Divorce |

While they are certainly less common than they used to be, many New Jersey residents may still receive a pension as one of their employment benefits. For example, many public employees, including teachers, firefighters and police officers, receive pensions. Retired military personnel also receive pension payments.

Likewise, some private employers still offer pension plans.

To review, a pension works differently than the more common 401(k) plan in a number of respects.

Most importantly, a pension guarantees an employee who retires a certain monthly income payment, with the amount of that payment usually depending on the length of an employee’s service.

A 401(k), on the other hand, offers no guaranteed payment; an employee gets back the money she and her employer put in as well as any return on the investment.

Is a pension marital property?

Under New Jersey law, only marital property is subject to equitable division in the event of a divorce. Ordinarily, property that a person acquired before he got married belongs to him outright.

Particularly with people getting married later in life, a New Jersey resident may earn a large portion of her pension well before she ties the knot. When this is the case, there may be an argument that what she earned before marriage should not get share with her spouse. Likewise, pension income earned after a couple splits may be set aside.

Putting a value on a pension

When it comes to pensions, one difficulty is that they promise a stream of income at a future point in time. It is therefore hard to know exactly how much the guarantee of a future pension is worth in today’s dollars.

On the other hand, when courts divide marital property, they go off the value of that property in today’s dollars. In addition to legal advice, someone going through a divorce may also need the assistance of a financial expert or someone who has experience appraising the value of pensions.

Other issues

Just like any other asset, New Jersey courts are charged with dividing up pensions fairly, and not necessary equally. This means that the courts will consider a number of factors, like the earning potential of each spouse, the length of the marriage, and the overall health of each spouse.

Although they are a valuable financial benefit for many, pensions present thorny issues in a divorce that may require considerable skill and patience to iron out.

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