A pension is a regular payout made during an employee’s retirement. There are different types of pension plans, and each one provides a range of options for the employee. For example, a vested pension is one that survives the voluntary or involuntary termination of the employee. Alternatively, a matured pension is a pension that an employee has an immediate right to receive. Below we’ll examine a court case and the precedent it set for pension plans in a divorce.
Janssen v. Janssen, 331 N.W.2d 752 (Minn.1983), argued whether a nonvested, unmatured pension is marital property which can be divided in a marital dissolution proceeding.
Mr. Janssen was employed as a police officer. As part of his employment, he contributed to and acquired benefits from the Minneapolis Police Pension fund. His pension fund permitted him to retire after 20 years of service, but the benefits of the pension would not be received until appellant was 50. Mr. Janssen was six months short of his completion of 20 years of service at the time of the divorce.
The issue before the Supreme Court was whether the pension, which was unvested and unmatured could be divided as marital property in a divorce.
The court found that a pension of this nature is marital property and can be divided in a marital dissolution proceeding.
Division of the Pension
A party is unable to determine the current value of a pension without professional evaluation of the pension. Thus, unless a party wants to buy out the other party from their claim to the pension, the parties will utilize a Qualified Domestic Relations Order (QDRO) to complete this transaction.
The party who has the pension is known as the “participant” and the party receiving an interest in the participant’s plan is known as the “alternate payee.”
The formula used to determine the alternate payee’s claim to the pension is as follows: The marital interest of each payment will be a fraction of that payment. The numerator shall be the number of years of marriage during which benefits were being accumulated, and the denominator will be the total number of years during which benefits were accumulated prior to when paid.
For example, if the alternate payee is going to receive 50% of the marital portion of the pension, the calculation is as follows:
Length of Participant’s Marital Pension Service x 1/2 (pension benefit) / Length of Participant’s Total Service.
We’ll add some numbers to make it simpler. Let’s use the Janssen scenario, and we’ll say the couple has been married for 10 years. Let’s assume the court ruled that Mrs. Janssen was entitled to only 40% of the pension for undisclosed reasons. That gives us:
10 (years Mr. J contributed to the plan while married) X .4 (Mrs. J’s entitlement) / 20 (years of total pension) or,
(10 X .4) / 20 = .2, or 20%
Mrs. Janssen would be entitled to 20% or Mr’s Janssen’s total pension payout.
The key in this formula is that until the participant is going to receive his or her benefits from the pension plan (i.e. until the plan is matured), then the alternate payee’s interest in the pension is unknown without an actuarial calculation of the pension.