When managing monthly pension payments, it's important to address three key considerations. These are essential for everyone to keep in mind and address accordingly.
1. How Much Is Each of You Going to Get From the Monthly Payment?
a. The payment could simply be divided in half.
b. A payment could be in proportion to how much was earned during the marriage, compared to how much was earned before and/or after.
c. People may just agree on a dollar figure because it’s more convenient.
Regrettably, many individuals fail to consider the remaining two critical choices while deciding on the distribution of their pension. It is imperative to thoroughly review all options to ensure proper planning.
2. The Employee Spouse Dies Before Retiring.
Pension plans worldwide typically offer a lump-sum death benefit to an employee's beneficiaries, which can be extremely valuable. For instance, a New York teacher's death benefit exceeded $500,000 after only four years of service.
You have several options for distributing this benefit, such as awarding it to the custodial parent or dividing it among beneficiaries as desired. The crucial factor is ensuring that this possibility is included in your plan.
3. The Employee Spouse Dies After Retiring.
It is not advisable for the surviving spouse to rely on the natural cessation of payment upon the employee's death. Without proactive measures, their standard of living may be compromised.
Almost every pension plan offers some form of survivor benefit to the other spouse. That benefit can be the same amount or range from 25-100% of the monthly amount.
This option may have a cost depending on the plan terms. For instance, if the total payment is $5,000 monthly for the employee's lifespan, the couple may receive a reduced amount of $4,500 or $4,000 monthly, based on their selected option. The reduction in monthly amount starts immediately, and the couple must decide on how to split the cost.
If you're splitting a pension plan during a divorce, it's important to understand the big QDRO considerations. These are critical points that every divorcing couple should be aware of and take into account. If you need assistance with your QDRO options, please don't hesitate to reach out to us!