Net Present Value of a Retirement Plan in a Colorado Divorce

Are you involved in a Colorado divorce or family law proceeding involving retirement? An experienced Colorado Springs divorce attorney can guide you through the legal process and assist you in exploring your options. You have one bite at the apple in the court system so make it count.

One valuable marital asset is often a defined benefit retirement plan. Property generally is valued as of the property-disposition hearing or decree. C.R.S. § 14-10-113(1)–(5). Parties can either divide the retirement plan between themselves, or value and offset it with other assets. A Net present value (NPV) expresses the value of retirement benefits expected to be paid in the future. If the parties do not divide a defined benefit pension, then the court can assign a present value to the marital portion, award the pension to the participant spouse, and offsets the other spouse’s share with other marital property. In re Marriage of Kelm, 912 P.2d 545 (Colo. 1996).

A vested pension earned during marriage is marital property even if payments have not begun and receipt depends on the participant surviving to retirement. Note that when pensions are divided as opposed to valued and offset, if the employee never receives the pension, then in most cases the former spouse does not either unless there is a provision for a spouse to begin receiving the pension earlier than the employee actually takes it.

There is a specific methodology to prepare a NPV, and there is some discretion involved as well, which is why various experts can value the same pension with different results. For a defined-benefit pension, a NPV calculation begins with determining the plan benefit and applies actuarial and investment assumptions, including probable retirement age and life expectancy to value future payments at the valuation date. The resulting figure exceeds just the employee’s contributions. The valuation must determine the marital share of the pension which is based on the years of the overlap of the marriage with the employment. C.R.S. § 14-10-113(6)(c)(III)(C), In re Marriage of Hunt, 909 P.2d 525, 531 (Colo. 1995).

A NPV division offers finality: the nonparticipant receives property now rather than waiting for retirement, while the participant retains the entire pension as well as its subsequent risks and potential gains. This is a viable option when there is enough other marital property to have a fair offset. Because of the high value of pension interests, not all marriages have sufficient offset assets. An expert who prepares Qualified Domestic Relations Orders can usually also value pensions. That expert will prepare an opinion report for the parties and the court to utilized showing the NPV. A NPV opinion should make its plan benefit, valuation date, marital-service allocation, retirement and mortality assumptions, discount assumptions clear.

Writer’s practice observation – Certain attorneys and accountants specialize in pension division and they typically prepare dividing orders and NPV values. Most family law attorneys do not have the required accounting expertise to prepare NPV estimates. These experts can also testify in court as to divisions and valuations as needed.

Life involves change. People change and relationships can change. Sabra Janko is a highly knowledgeable and experienced Colorado Springs divorce attorney who can guide you through Colorado Springs divorce and retirement matters by negotiating, mediating and litigating on your behalf. You can focus on moving to a better future instead of spending your time attempting to navigate complex legal rules and procedures. Sabra also actively assists clients in negotiating solutions giving them more control over the outcome of their action than leaving the decision up to the court process. However, if we go to court, we put on our best case there.

Sabra Janko from Janko Family Law has more than 20 years of legal experience and has written “the book” on Colorado divorce and family law – “Colorado Family Law With Forms”, published by LexisNexis, which you can find here. Contact us at 719-344-5523 or complete our online scheduling request for a free 30-minute informational consultation. We also offer paid advice sessions for a more in-depth analysis of your case.