Divorce is commonly seen as one of the most stressful experiences one will ever go through. Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well. For that reason, it’s a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process.
Valuing a Pension
While pensions are not that prevalent these days, they are still common for School Teachers and Government Employees. Every participant who is enrolled in a pension gets a statement showing them what dollar amount they could access if they cashed in their pension. This dollar value is NOT the value of the pension. It’s simply their walk-away value. A professional pension valuation would need to be done in order to calculate what the actual value, in today’s dollars, is. To do this, we need a few bits of information. The hire date, the marriage date, the separation date, and the last day of employment, if employment has been terminated. That information will tell us how much, if any, is community property and how much, if any, is separate property. We would also need to know when the employee is entitled to start receiving monthly payments and what would those monthly payments be and is there a cost of living adjustment.
Next, we would need to know what growth value we are going to use to calculate the present value. In other words, we are calculating how much money one would need to have invested today, at the given growth percentage, to create a pool of money that would generate the same stream of payments at some point in the future. The most commonly used return percentage would be the 20-year treasury. The smaller that number then the larger the valuation will come out to be, but it is usually significantly more than the figure on the employee’s statement. Failure to accurately calculate the true value of the pension can have a significant effect on the asset settlement. It may be a good idea to have a financial professional involved in your divorce so that these issues are not overlooked.
Keith Powell, Certified Financial Planner® and Certified Divorce Financial Analyst™
www.austindivorceplanners.com firstname.lastname@example.org 512-963-6883
Securities offered through SCF Securities, Inc. • Member FINRA/SIPC • 155 E. Shaw Ave., Suite 102, Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX. Investment advisory services offered through SCF Investment Advisors Inc. SCF Securities, Inc. and Austin Divorce Planners are independently owned and operated. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.