I was talking to a friend, who is a teacher, about distributing assets in her divorce. I told her that her husband has an interest in her pension. “He gets a portion of my pension?!,” she exclaimed. Yes, I thought, of course he does, but then I realized that this is not common knowledge.
New Jersey is an equitable distribution state, which means that in a divorce, assets that were accumulated during the marriage are equitably distributed between the husband and wife. Remember that equitable does not mean equal or 50/50. New Jersey has an equitable distribution statute, N.J.S.A. 2A:34-23.1, that sets forth numerous factors to be considered in distributing assets, such as the length of the marriage, earning capacity, and the standard of living during the marriage.
Back to my friend, her husband has an equitable interest in the portion of her pension that was accumulated during the marriage. This means that if she has been a teacher for 30 years and she has been married for 10 of these years her husband has an equitable interest in the portion of her pension that she accumulated during their 10 years of marriage, but not in the 20 years before the marriage. So how do we determine what portion of her pension her husband may receive in the divorce?
A pension is a defined benefit plan. A defined benefit plan is an aggregate account of funds contributed by the employer for the benefit of all participating employees. 26 U.S.C. §414(j). There are no individual accounts. An employee’s retirement benefits are determined by a formula applied at the time of retirement. Marx v. Marx, 265 N.J. Super. 418, 423-424 (Ch. Div. 1993).
A pension is different than many other types of retirement accounts, such as a 401K, which is a defined contribution plan. A defined contribution plan provides an individual account for each participant and each participant’s benefits are based solely on the amount of funds contributed to their account. 26 U.S.C. §414(i). A defined benefit plan, which is usually in the form of a pension, is defined as any plan that is not a defined contribution plan. 26 U.S.C. §414(j).
A defined benefit plan is distributed by determining a fraction, the total number of months a person was married divided by the total number of months the person contributed to the pension (120 month360months = 1/3 or 0.33).
Now that I have bored you, I bet you are wondering what does this mean? It means that her husband has an equitable interest in one-third of her pension. It does not mean he automatically receives 1/2 of this 1/3 (1/6 of 16.7%), although this is one possible outcome. An order could be entered providing that her husband receives 1/6 of her pension payments once her pension is in pay status. Another option is that an expert can value her pension and the amount of funds husband is likely to receive from these payments and this amount could be offset against another asset, such as the husband’s 401K, another financial asset, or even the equity in a house.
There are many different options available to my friend and her husband depending on the other assets that are available for equitable distribution, their financial circumstances, and what they ultimately want. If you have any concerns about your or your spouse’s pension or other retirement accounts, please reach out and we can discuss how to best protect your interests and ensure your future .
Melissa Knoerzer, Esq. is an Associate with the law firm of Adinolfi, Lieberman, Burick, Falkenstein, Roberto & Molotsky, PA in New Jersey. She represents clients throughout the state in all matters related to divorce and family law.