In our last post on the Equitable Mediation Services divorce mediation blog, we discussed equitable distribution and how the valuation and division of retirement accounts in a mature divorce are handled.  Today I’d like to talk about pensions.  These days the idea of a pension seems pretty foreign but for those going through a gray divorce or silver divorce you may be one of the lucky few that still has a pension.  So how are the valuation and division of pension accounts handled in a gray divorce or silver divorce?   First is the plan itself and second is what is known as the “coverture fraction.”

The theory behind a pension is your employer has been setting aside a certain amount of money for you to collect from upon your retirement.  Behind the scenes, the employer has made guesses as to how long you’ll live, how much money they have to put away for all eligible employees and what those payments would be upon each employee’s retirement. But what happens if you find yourself in a gray divorce or silver divorce situation but you’re not yet retired?  For the purposes of equitable distribution we can calculate a value of this cash based on the pension plans rules, your age and your length of service using something called “present value” which represents the current value of the money your employer should have put away on your behalf at a certain point in time in this case, your divorce.   This calculation is rather complex so at least this NJ divorce mediator uses an outside firm to calculate these values.

The other factor is that of the coverture fraction.  Chance are those going through a gray divorce or silver divorce have been married for quite some time and would have substantial retirement assets to divide.  But as you’ve heard me say before the full phrase is the equitable distribution of marital assets and liabilities.  So how do we determine if your pension is a marital asset?  We use what is known as a coverture fraction.  Divorce Support.com defines a coverture fraction as:

A tool used by an appraiser to separate that portion of the benefits which was earned during the marriage, from that portion of the benefits which were earned outside of the period of marriage.

So let’s say you are still employed and were married 30 years as of your date of divorce but were enrolled in your company pension plan for 45 years.  In this case, only 30 of the 45 years of service would be considered marital and there for only 2/3 of the pension value would be subject to equitable distribution (30 divided by 45.)  I realize this is a very simple example but it gives you a rough idea of how the valuation and division of pension accounts would be handled in a gray divorce or silver divorce or any divorce for that matter.

If you have any questions regarding equitable distribution or would like more detail regarding the valuation and division of pension accounts in a gray divorce or silver divorce please feel free to contact me (NJ divorce mediator Joseph Dillon) at (908) 864-2177 or via e-mail and I’d be more than happy to help.

In my experience as a divorce mediator in NJ, the valuation and division of retirement and pension accounts is the most important item for those going through a mature divorce.   We cover the topic of retirement assets as part of our Equitable Distribution discussions and for those experiencing a mature divorce it is one of the most challenging areas.   Since retirement and pension accounts are handled differently, let’s start with the simpler retirement accounts and we’ll focus on pensions in our next post.  For items such as a 401(k), 403(b) or Employee Savings Plan we can ascertain their current worth rather easily by going to a website or asking our financial advisor but while it may seem simple, we need to account for a few variables.

First is the tax treatment.  Since these accounts are tax-deferred, when one of you receives an Equitable Distribution of these types of assets, you will owe taxes on them when you take them out upon retirement so in reality they are worth about 25% to 33% less than their current value.  An important consideration if you’re trading off retirement assets for cash in a checking account as cash can be used income tax-free. Next is the volatility.  Investment accounts fluctuate in value on a daily basis.  Say your soon to be ex worked at BP and their retirement portfolio consisted entirely of company stock (Think this doesn’t t happen?  Ask the ex-employees of Enron).  Then while going through an mature divorce in exchange for a savings account of similar value you received 100% of the stock.   British Petroleum’s stock is down more than 50% over three months and given your divorce may take a few months to get through the courts, you would be left holding a retirement assets that’s worth half of what it was when you first started divorce mediation.   For someone going though a mature divorce that can have a huge impact on their ability to retire as they may not have many or any working years left to recover from such a financial disaster.

By working with a divorce mediator such as myself, in addition to my legal background I also have an MBA in Finance and can help you and your spouse come to a fair and equitable distribution of your marital assets that works for both of you now and in the future by making sure each of you has a combination of assets that meets your short and long term needs. Perhaps one of you still has a few years to work and one of you is retired so in that case one of you may wish to take a larger share of retirement assets and one take more cash or we can split all assets 50/50 as the choice is really up to you. as after all, it is your divorce.  My name is Joseph Dillon and if you have any questions please e-mail me or call me at (908) 864-2177 and I’d be more than happy to help or schedule a consultation for you and your spouse to discuss your situation further.

In our next post, we’ll focus on pension accounts and how they’re handled during a divorce mediation as they are quite a bit more complicated so stay tuned.

Ever since the news that Al and Tipper Gore are splitting the media is having a field day calling it a Gray divorce, Elder divorce, Mature divorce or Silver Divorce but no matter how you refer to it remember to use divorce mediation to settle your differences.  Now you may think that counter-intuitive since you’ve been married a long time and have significant assets at stake and therefore should go and hire the most vicious attorney you can but that’s the exact reason why you should use divorce mediation.  I’m figuring you would rather keep your assets for retirement or to pay for your children’s weddings instead of spending them on legal fees.

About 15% of the clients we see here at Equitable Mediation Services are what we would classify as an Elder divorce or Mature divorce.  The typical profile looks like this:

• Married 25+ years
• No minor children (under the age of 18) living with them
• Parties in their late 50′s (or older) and either retired or very close to it

In these cases Equitable Distribution of marital assets and liabilities and Spousal Support (formerly known as Alimony) are of utmost important while the notions of Parenting Plans or Child Support are of no concern since the children have now all grown.   While couples going through a Gray divorce or a Silver Divorce, Pension Valuation, Retirement Asset distribution and housing are all of significant concern.

My name is Joseph Dillon and as a NJ divorce mediator who not only is one of only 100 Accredited Professional Mediators in New Jersey but also holds a Master’s degree in Finance, I can help you and your spouse with the extremely complex asset division that a Mature divorce most certainly brings.  Over the next few posts I’m going to take an in-depth look at the issues facing those going through a Gray divorce, Elder divorce or Silver Divorce in the hopes of providing you with the information you need to see that divorce mediation truly is the smarter way to divorce, no matter what your age or circumstances.

We’ll take a look at the issues surrounding the Equitable Distribution of marital assets and liabilities such as:

• The valuation and division of retirement and pension accounts
• The valuation and division of any physical property such as the marital home or rental properties and where will you will live once you are divorced
• Taxation issues facing older couples
• The division of debt and the impact it may have on your credit score

We’ll also examine some of the critical issues surrounding Spousal Support (formerly known as Alimony) including:

• How do we agree on an appropriate amount of Spousal Support?
• When does it end and what exactly defines a “change in circumstances?”

So whether you call it a mature divorce, a Gray divorce, Elder divorce, Mature divorce or Silver Divorce, the fact is you have a choice in how you proceed. If you have any questions about divorce, the mediation process and how divorce mediation can benefit you, please contact us to set up a consultation for you and your spouse in one of our many convenient Northern or Central New Jersey locations where we will discuss the specifics of your case and explain how mediation can help you both move forward peacefully and efficiently saving you time, money and headaches in the process and check back to our blog frequently for the next article in the series.