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Valuing and Apportioning a Retirement Plan

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Valuing a Retirement Plan

Valuing a Business

Employee Stock Options

By Kathleen Hudgins
Senior Pension Consultant
Legal Economic Evaluations

Today's retirement plans have become quite valuable and most often are worth more than the family home. A divorcing couple's retirement plans must be considered a valuable marital asset. In addition to wages, many employers offer retirement plans as compensation that is earned now, but not received until termination of employment or eligible retirement age. A fair property settlement must consider the value of all retirement plans earned during the marriage and apportion them between marital and separate property.

A GUIDE TO YOUR PLAN:

DEFINED BENEFIT PLANS (aka pension plans) offer the employee a fixed monthly benefit at retirement. Retirement benefits are determined by a formula, which usually considers (1) length of service, (2) final average monthly salary and (3) the age at which you retire.

This method is based on the formula rather than the account balance and is different from a defined contribution plan. The employee may or may not have contributed to this plan.

It is possible to place a value on the future monthly payments, although it is a complex procedure involving interest rates and the pensioner's mortality. Due to the complexity, it is advisable to call on an expert to value this type of plan. Our firm can value a defined benefit plan for a low, fixed fee of $175.

DEFINED CONTRIBUTION PLANS are the most common type and are often referred to an IRA, 401(k), 403(b) and PROFIT SHARING PLANS. Each participant maintains an account and the employee and/or employer make contributions to that account. The plan invests the contributions and adjusts the account periodically for investment gains or losses. Upon termination of employment, the employee has the option to receive the entire account balance in one lump sum, providing all vesting rules have been applied. Defined contribution accounts can be simple to value, as the value is the account balance, much like a bank account.

The important issue in divorce is the apportionment of the value between the amount accumulated and/or earned during marriage and the separate property of the pensioner. Separate property usually occurs if the plan began before marriage and the elapsed time between date of separation and dissolution. Any loans and rollovers can also be complicated. Separate and marital property may need to be apportioned by an expert. Our firm is nationally recognized in this field and usually is one low fee of $250 per plan.

STOCK OWNERSHIP PLANS (ESOPs) are similar to a defined contribution plan except the contributions are given by way of shares of company stock. A stock ownership plan (not to be confused with a stock option plan) may be valued similar to a defined contribution plan. The value of the stock may be found either in the financial pages (publicly traded stock) or closely held companies provide the value of their stock annually.

UNIQUE PLANS are all retirement plans not covered in the above definitions. Most common are "Employee Stock Options" and deferred compensation plans". Employee stock options may be very valuable and may require apportionment between marital and separate property. (see "Valuing Employee Stock Options")