Retirement Benefits and Pension Survivor Benefits

This article involves many technical details that are necessary to explain this subject. If you do not understand some of this overview, please contact us and we can explain this topic further – (410) 730-4404.

Many people do not know that a Pension is considered marital property.[1] Courts have the power to transfer ownership of an interest in a pension, retirement, profit sharing, or deferred compensation plan from one party to the other. They also have the ability to determine what part of the pension is marital property, and what part is not. Even employee stock has been found to be an interest that can be transferred to the employee’s spouse. As a result, these plans have become an important issue in divorce cases. How would they be valued? How would they be distributed? The court found two alternatives to determine proper allocation of retirement benefits:

  1. Estimate the present monetary value[2] for the Pension and the other spouse would get his/her share, either in lump sum or through installments

  2. Establish a fixed percentage of any future payments that would go to the pensioned spouse if, as, and when they are received.

This second alternative is more reasonable when dealing with a spouse who lacks sufficient assets to make a lump-sum payment at the time of the divorce. No present value must be estimated in this situation, and the percentage is simply applied to pension payments “if, as, and when” they are received.

Military Pensions are a prime area about which many people have questions. The Uniformed Services Former Spouses’ Protection Act leaves the states to decide how to treat military pensions. Maryland chose to consider military pensions in the same manner as any other pension or retirement benefit. However, state treatment is still guided by some federal regulations. For example, military disability retirement pay is exempt from marital property laws under Federal Law.

Survivor Benefits: Can the courts order one spouse to provide survivor annuity benefits for the other spouse? YES. This is marital property, and therefore a court can force a party to provide a survivor annuity. The non-pension spouse’s interest in the marital portion of a pension is protected in the event of the pension spouse’s death. As for members of the armed services, they fall under the same authority. A court may order a party to maintain a former spouse (under the judgment of divorce) as a beneficiary of the survivor benefits plan made available to members of armed services. In all cases, the court may choose who will bear the cost of the survivor annuity benefit during the life of the employee spouse.

Nevertheless, survivor benefits are a discretionary matter, not a matter of right. The spouse who wants an interest in the survivor benefit attached to the other spouse’s pension must specifically ask for it. It is not assumed as part of the pension benefit itself. You must show that all or some of these benefits are marital property and show the value of those benefits. If we can establish, on your behalf, these two requirements, then the court may award some of these benefits to you.

Calculation for Awarding a Share of a Spouse’s Pension: The courts have developed a specific approach to awarding a share of a spouse’s pension. It has become known as the Bangs Formula. The Formula is under the second approach mentioned above, awarding a spouse a fixed percentage of future pension payments, to be paid if, as, and when received by the pension spouse. This share is equal to one-half of a fraction of which the number of years and months of the marriage is the numerator and the total number of years and months of employment credited toward retirement is the denominator. This formula is depicted as:

Retirement Benefits

For Example: A starts working in 1980. A marries B in 1985. A Divorces B in 1995. A retires in 2000. In this scenario, B would get 25% of the Pension payments as a result of ½ x 50%:

Pension Survivor Benefits

The couple was only married for 10 out of the 20 years (50%) that A worked toward pension benefits. Of this 50% of the employment benefits earned from A’s work during the marriage, B is entitled ½, equaling 25% of the future pension payments.

NOTE: The numerator changes to (Years Married While -A- Works Toward Pension) if A retires before A and B get divorced and/or marriage begins before the employment.

This article has provided a quick overview of pensions and retirement plans as marital property. For further information and answers to your questions, contact our Howard County Family Law Lawyer in Columbia, Maryland at 410-730-4404.

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1. This was decided first by the Court of Special Appeals in Ohm v. Ohm, 49 Md. App. 392 (1981), and then by the Court of Appeals in two cases heard together. Deering v. Deering and Andrews v. Andrews 292 Md. 115 (1982).

2. By the use of experts, the future value of a pension is determined and entered into a formula which will result in an estimated present value of the pension.