Doing Divorce Right By Chief PeaceKeeper™ Scott Levin

Understanding Pension Assets in Divorce with Laurie Itkin

• Scott Levin Divorce Mediation Attorney

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Are you navigating the tumultuous waters of divorce and grappling with assets like pensions? Fear not, because this insightful conversation with Certified Divorce Financial Analyst and San Diego family law attorney Scott Levin and Laurie Itkin, also a certified divorce financial analyst, is packed full of wisdom and guidance. Laurie uses her expertise to unpack the importance of understanding the value of pensions during divorce proceedings. She explains what pensions are, how they differ from other retirement vehicles, and the emotional aspects and mandatory contributions that come attached.

Ever wondered about the complexities of pension valuations and the role of actuarial involvement? Laurie takes us into the depths of these issues, highlighting the financial implications of any settlement proposal. She emphasizes the importance of collaborating with a specialist when dealing with pensions and shares her experiences of helping clients comprehend the value of their assets and liabilities. You'll learn about the variables to consider when valuing a pension and the challenges that arise when dividing pensions in divorce. This episode is a treasure trove of knowledge for those wanting to understand the intricacies of pensions in divorce. Don't miss out!


Thanks for listening and I hope you'll continue to learn more about how you can peacefully divorce.

As a divorce mediation attorney in California, Scott Levin helps couples figure out the settlement terms and draft enforceable settlement agreements so they can divorce fairly without needing to go to court. Obtain closure peacefully through an amicable divorce. process that protects families and kids.

Visit San Diego Divorce Mediation for more information and to learn more about our mission to help divorcing couples make informed decisions and fair agreements through mediation or book a free virtual consultation.

Scott Levin, attorney, mediator, CDFA®
Chief PeaceKeeper
scottlevinmediation@gmail.com
858-255-1321
San Diego Divorce Mediation & Family Law
www.SanDiegoFamilyLawyer.net




Speaker 1:

Hey everyone, Scott Levin, Chief Peacekeeper, and I am here with my good friend and colleague, Laurie Etkin. Hi Laurie, Hi Scott, how are you? Today? I'm doing wonderful. So as a mediator, I often refer out questions about the value of different financial instruments to experts like Laurie Etkin. Laurie is a certified divorce financial analyst and she has an incredible history of working with my clients to resolve and understand the value of all sorts of assets, especially and oftentimes, pensions. So I thought today would be a really interesting topic to talk about. There's pension in the divorce. What are your options for handling that asset during the divorce and how do you go about dividing it or sharing it in some way? So I guess, Laurie, before we jump in in your practice, how often do pensions and the value of pensions come up?

Speaker 2:

Yeah, it's very common, as you know. I mean, we practice in California and CalSTRS your teacher in the public school system, calstrs. We also have PERS and we may have a lot of pensions that are due to people who have worked in the public safety field often dangerous, often very stressful, and they feel they've earned the pension and may not really understand why it has to be shared with their spouse.

Speaker 1:

Exactly, and so just to kind of just differentiate a pension from a 401k or another retirement vehicle, basically a pension is a promise from your employer to pay you a certain amount of monthly benefit for the rest of your life upon retirement. Do you have any differentiation or anything to add on that definition, Laurie?

Speaker 2:

Yeah, I work on a lot of cases where the survivor benefit I'll just go into one little detail here because we don't want to get too much in the weeds but often when you are selecting what you are going to receive as a monthly benefit, you actually have choices.

Speaker 2:

You can choose a single life annuity which will give you, the pension holder, the highest monthly benefit, or you can choose to take a little less but leave a survivor benefit in some ratio or percentage to perhaps your spouse, maybe children, and oftentimes the conflict comes when you're getting a divorce. You really don't want to leave any of this to your ex-spouse, so that gets into the negotiations as well. But this is different. Basically, you might have a 45-year-old person who may not retire until 65, maybe 55, maybe they don't know and all we can get are estimates of what you may be paid as a monthly benefit 15, 20, 25 years in the future. So with a 401k, a 403b, you can pull up that June 30th statement and say, aha, it's worth 287,000. You get half. You can't do that with a pension. You have to value it and that's a whole different ballgame than just eyeballing an account balance on a statement.

Speaker 1:

And because oftentimes people Laurie mentioned, like for firemen and police officers and even teachers, the pension is a really emotion. There's a motion attached to the pension Like, hey, this comes up all the time in my mediation. It's like I earned that I went to work sick, I went through not snow in California, but you know rain, sleet, snow, I got shot at, I went into that burning house. You know that has a motion attached to it. So it's not just a dollar and cents, there's also some emotional attachment to it.

Speaker 2:

The mandatory contribution in many cases where you'll find why does a teacher get paid less than somebody in the private sector? Because they may be making an 8% mandatory contribution from their paycheck, every paycheck. 8%. You have universities, sometimes it's 7%. They have no choice, Whereas with a 401K Scott, you have a choice Do I want to contribute or don't I? So a lot of emotional issues.

Speaker 1:

And because of that, along with all sorts of different things, a lot of people going through divorce in California like to try to explore the trading of the pension. So rather than me taking the portion of the pension that I would be entitled to for my spouse upon their retirement, let them have the pension, but I get something different. But to do that, to make that trade, the first step is to what Value it. Have some sort of understanding of what the pension is worth. Laura, you say it better than I do. What are your thoughts about how you think the pension now for something that might not happen in 10, 15, 20 years?

Speaker 2:

Yeah, the biggest mistake is you might get if you are an employee and you're covered by the pension, you may get a document that shows you how much you contributed to that pension over the years. I've seen 30,000, 100,000, 50,000, that, and then they pass that off, usually without knowing that that's incorrect. But that's incorrect because your monthly payments in the future are not only taking what you contributed into consideration, but the match that the pension fund is investing on your behalf. I mean, these huge pension funds have billions of dollars when we look at the country, and they're invested in hedge funds and stocks and real estate and all these things. So you have to value the pension and it's not what the number is on this statement. So how do you value a pension?

Speaker 2:

You can go to an actuary and I'll just tell you. I'm gonna briefly tell you which variables are most important in doing this calculation. We are gonna want to have an estimate, maybe from your employer, what your monthly benefit may be If you continue to work at the same salary level or maybe a higher salary level. Whatever their estimates are till your retirement age could be 55, it could be 65, we need to know that and that's already inaccurate because we don't know if you're gonna work that long.

Speaker 2:

We don't know if you're gonna get bumped up in some other position. Number one. Number two we need to do a discount rate. You are getting paid in the future. Money in the future is not the same as money in your hand today, because in my hands today, if I have $100,000 today, I can invest it and get 5% a year compounding. So we need a discount rate and the value of the pension totally differs If that discount rate is 5%, if it's 3%. And let me tell you, if you are not in mediation and you are working with two attorneys, one expert will say, ah, Scott, you can invest that and get 5%. So really, the offset is less. And then the other person will say, no, you can only get 3% risk-free. And all of a sudden, now you're trying to trade an asset and you have one expert saying the pension's worth $500,000 and one expert saying it's worth $800,000. Well, what is it, Scott?

Speaker 1:

Who knows right?

Speaker 2:

Crap shoot? And what if you die before you can get the pension?

Speaker 1:

And if you have not elected a survivor benefit.

Speaker 2:

that pension may not be paid to anybody no ex-spouse, no children, so it is a crap shoot. Valuing a pension is a crap shoot. So when I'm a neutral analyst to a couple, or even when I'm an advocate, I make it clear that there is no right answer on the value of this. And if you wanna keep the house and the other spouse keeps the pension, it won't be a fair trade. We just don't know who's better off, you or your spouse. Crap shoot.

Speaker 1:

So what recommendations do you make when someone like me brings a couple that in mediation or even in litigation? When you're brought into a situation just to work for one person and they say I have this pension or my spouse has this pension, what do you think I should do? Do you have a? Is there one set of answers? Or does it depend on the spouse's age, how long they've worked for the company, how long they've been married, all those things?

Speaker 2:

Well, if you want the most equitable division equitable and you can define that however you wanted to find that. But if you want the most equitable division, you would want to divide the marital portion of said pension. Marital portion a simple way. In general it's called a Coverture Fraction, where we take if the employee had been employed for 15 years and they had been married between the date of marriage, the date of separation for seven and a half years, then the community property portion is 50%, not 100%, so we don't split it in half Now it also we may have one spouse maybe 20 years younger than the other, so the monthly benefits are gonna be different. But anyway, you can do this.

Speaker 2:

Many pensions use a qualified domestic relations order to divide them. That means if you're 45 today, your spouse is 45 and your spouse retires at 65. You don't know now when he or she's gonna retire, but if and when they retire, you know that you are gonna get a portion of their pension. Or sometimes you may even be able to collect on that pension on your share before they actually retire. Lots of nuances to this, but that is what I consider to be the fairest way to do this, because you at least have some inkling that it is equal or equitable. Now, some people don't wanna do that because, as you said, I am keeping my pension and some people want to keep the house.

Speaker 1:

So, going back to when, if you go through the quadro process or a version of that, let's say that you are not of retirement age but your spouse is Does that affect anything? It?

Speaker 2:

depends. It depends the pension, it depends. There's different methods of segregation and in some cases you may be able to collect before or after your spouse collects. In some cases you may have to wait until your spouse collects.

Speaker 1:

And in terms of if your spouse pre-deceases you prior to retirement age, are there things that you can do to reserve your right to your portion of their pension?

Speaker 2:

Now that is a very good legal issue that must be addressed. Do not and I think the trainings that many of us in our ecosystem of divorce take remind us very much of that that what happens if the person dies before they reach retirement age? Does anyone get anything?

Speaker 1:

And if you have a survivor's benefit or if you have the quadro in place, does it matter if your spouse dies while they're eligible to take their pension? If they reach retirement, they're taking their pension. You're receiving your portion. Is there any way that their death at that point could affect?

Speaker 2:

It depends which method of division you have chosen.

Speaker 1:

Okay.

Speaker 2:

And you have to have that addressed. The quadro, the Qualified Domestic Relations Order. It's a very boring document, customized each pension plan and these are the issues that must be addressed and each client should understand what they're agreeing to.

Speaker 1:

And what about taxes and pension benefits?

Speaker 2:

Do you?

Speaker 1:

have any thoughts about how Sure do.

Speaker 2:

We have fun together, don't we, oh my gosh. So remember that when you receive your pension especially you live in California in most cases you are likely going to have to pay federal and state income tax on that pension. How much it depends what your overall income might be at the time. Right Same thing you might be getting social security. Now, of course, that's another issue. Certain pensions you have not paid into social security, so you don't get social security, which is another complicating factor. But you, we would just, you would just pay taxes, likely based on your tax bracket, those years you're receiving payments, Do you?

Speaker 1:

have any overall kind of. I know the fairest way to kind of deal with this is let's split it at the time of retirement, but doing it now during the divorce, rather than kind of doing the crapshoot model which is, hey, we'll trade it off, but we're really not going to know with a real degree of certainty what its present day value is. That's kind of the basic takeaway.

Speaker 2:

And if it's not a house, you're trading for the pension. It might be IRAs or 401Ks you're trading for the pension. Yeah, so it's fine. I mean for my clients, if they want, it's all a negotiation, right? You're the master, you're the chief peacekeeper. If somebody really wants that house, they will do anything for that house, and they may waive their rights to spouse's pension. They better know they're doing it, because once you've waived your rights, that's a problem. If you change your mind, though, have you ever had a situation?

Speaker 1:

Have you heard of someone changing their mind later?

Speaker 2:

The issue that I get that is different than that, but it's prevalent is. I have people contact me. They're divorced, I kid you not 10, 15, 20, even 25 years ago, and they never filed the quadro. And now they're like hey, my ex is retired and collecting. My father tells me he's collecting blah, blah, blah, blah, blah. Well, tough, tough, tough. You know what?

Speaker 1:

yeah.

Speaker 2:

And I will. I've even sent them to attorneys and I don't. Most attorneys don't want to deal with that.

Speaker 1:

Yeah.

Speaker 2:

I mean, have you found anyone what it was? Because give me a referral. I.

Speaker 1:

Get calls from people all the time and say, hey, we, we. You know, I would like you said divorce five, seven, ten years ago, but we never did the quadro and I'm always like I, I'm like I'm not the person to help you, but I, you know, I wish you would have done it five, seven, ten years ago.

Speaker 2:

That's the message. You may be so exhausted after the divorce. The number one thing when I work with a newly divorced client. As I say, we are going to read the marital settlement agreement or divorce decree together. We are going to play some action items of things that you need to do now. Often the spouse with the pension will not cooperate and that's out of my, my role. I can't compel anyone to cooperate.

Speaker 1:

That's for sure now will. Will you get involved with that actuarial Trying to figure out the present day value of a pension? Is that something that you work in so I can do that?

Speaker 2:

I have a software to do it, but I am actually prefer Referring people to a pension specialist who does only pensions, who can write up a nice fancy report. You can gather all the data and do it in a timely manner. So I certainly can walk someone through the pension valuation and look at the inputs by prefer that somebody who's dedicated to that Do them, and there's a lot of affordable people you know you can get pension valuations for well less than 500, even $300.

Speaker 1:

Amazing, isn't it?

Speaker 2:

yeah.

Speaker 1:

Lori, in general, tell us, tell us how you come into play, like when should someone consider Calling you if they're going through mediation or traditional divorce litigation? So I practice. I'm based in San.

Speaker 2:

Diego by practice throughout California was zoom. People contact me when they're contemplating divorce. They contact me when they're in mediation. They contact me when they're in litigation. I'm a good resource if you are trying to Understand the financial implications of any type of settlement proposal You're trying to make or evaluate with your spouse, in whatever Forum you do that.

Speaker 1:

Clients of mine have worked with Lori to understand the value of RS use to understand their division options, like she said, of different assets and debts. Unfortunately, sometimes divorce is more about dividing this, the debt than the assets, and those are always tough cases. But thank you, lori, for for joining us today and I just cannot recommend Lori with with more confidence and In more forthright. She's just just done amazing For those clients I've referred to and she just has a sparking reputation. So thanks for being here today.

Speaker 2:

Thanks, scott.

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