Every day or so, I receive a phone call from a potential client or lawyer concerning how to divide a pension plan in a Michigan divorce?Traditionally a pension benefit is a work related benefit where the benefit amount is defined by a pension plan. Unlike a defined contribution plan, which reflects a contributed benefit (think a 401(k)), a defined benefit plan awards a monthly (defined) benefit based upon years of service with an employer.
In simple terms if your “pension plan” would pay a monthly payment upon retirement it is a defined benefit plan, if your retirement plan has an account balance without a monthly payment option it is a defined contribution plan. Unfortunately, many people confuse the two types of benefits.
This article will address how to divide a pension benefit (a defined benefit plan) in a Michigan divorce?
Since a defined benefit plan is a pension plan where the retiree is entitled to collect a defined amount of money every month, the portion earned during the marriage is subject to division in a Michigan divorce. It is quite common for a spouse to be entitled to 50% of the benefit earned during the marriage.
There are three methods for calculating the benefit and they are not equal.
The first method is the prospective coverture method. This method generally produces the largest marital pension benefit.
The second method is the tracking method. This method produces an intermediate marital pension benefit.
The third method is the coverture method. This method generally produces the smallest marital pension benefit and is the most commonly used method for determining the marital portion.
The most commonly used methodology in dividing a pension benefit is the coverture method. However, the prudent lawyer will identify a methodology that maximizes the position of the client. Therefore, an award of 50% of the marital portion may not be good enough without specifying the methodology.
Ok, here are the formulas for the different methods for those so inclined:
Prospective Coverture monthly benefit = (Alternate payee’s awarded % multiplied by the accrued benefit at the date of first commencement multiplied by credited service earned during the marriage) divided by Credited Service at the date the benefits first commence.
Tracking method monthly benefit = (Alternate payee’s awarded %) multiplied by the accrued benefit at division date subtracted by the pre-marital accrued benefit)
Coverture method monthly benefit = Alternate payee’s awarded % multiplied by the (Credited service earned during the marriage divided by Credited Service at the division date.)
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I have been exclusively practicing divorce and family law in Michigan for over two decades. The attorneys at Findling Law all share the core value of practicing law to help people navigate change in their lives, without compromising principles. We specialize in high socio-economic, high-profile and high-conflict cases, while also working with clients of all backgrounds. We recognize that the most important aspect of the practice of law is the application of the law to your specific circumstances.That is why we provide more free information on divorce and family law than any other Michigan law firm. We want to help you manage your situation. Allow our exceptional legal team to help you navigate the change in your life, without compromising principles.
By: Daniel Findling