Overlooking A Marital Asset: Why Past Pension Payments Need to be Valued
The Florida Bar Family Law Section Commentator - December 2008
by Mark Altschuler

While it is established under Boyett  (703  So.  2nd  451,  Fla. 1997) and other  appellate  court  decisions  that  defined  benefit  pensions  are  marital  property, there have  been  disputes  over  the  marital  value  of  past  payments, if  a  pension  is  already  in  pay  status  at the time of divorce. If there is no  dispute as to future payments being  marital property, why would there  be  a  dispute  about  past  payments,  assuming the past pension payments  were  not  shared  by  the  parties?  In  fact,  past  payments  have  even  more  value than future payments.

One  argument  raised  about  past  payments  is  that  the  cases  do  not  mention past payments. That is true.  However, the cases do not exclude  past  payments.  In  fact,  the  marital  portion  of  each  pension  payment,  whether past or future, is determined  by  the  by  the  benefit  accrued  as  of  filing, under Boyett.

If  pension  payments  are  marital  property,  that  applies  to  both  past  and  future  payments.  Each  pension  payment  has  a  marital  component,  due  to  the  pension  being  acquired  during the marriage, or at least partially acquired during the marriage.  If  the  pension  payment  is  marital  property, it makes no difference when  the  date  of  retirement  is.  Whether  that  pension  payment  occurs  in  the  past  or  future,  a  component  of  that  payment, defined by Boyett, is marital  property.

Marital pension payments kept by  the employee are the same as dissipa- tion of a marital asset. Another way  of looking at this is a 401(k) scenario. Suppose the 401(k) was acquired during the marriage, but completely  dissipated by the employee after the  date of filing. It would not be reasonable to say the marital value is zero,  because  a  marital  asset  had  been  dissipated by the employee after the  date  of  filing.  By  the  same  token,  marital  pension  payments  kept  and  spent by the employee spouse represent dissipation of a marital asset.

But if there were no court order to  share the payments that was ignored,  why  would  this  be  dissipation  of  a  marital asset? Assuming the case is  settled by reduction to present value  and immediate offset, the future payments  are  a  marital  asset  that  has  value,  without  court  order.  By  the  same  token,  the  past  payments  also  have value. There is no mathematical  difference  at  all  between  past  and  future payments. The same equation  that is used to calculate present value  is used to calculate the accumulated  value of past payments. Thus, there  is no basis for an argument to the effect that past payments are different  in  kind.  From  a  legal  point  of  view,  the employee’s keeping and spending  past payments are merely dissipation  of a marital asset.

Mathematically,  past  and  future  payments  use  the  same  formula  for  calculating  today’s  value  of  the  past  or  future  payments.  Past  payments are compounded forward due  to past time being negative, and future  payments  are  discounted  back  due  to  future  time  being  positive,  but  the  formula  is  the  same.  Suppose the interest rate is six percent.  Today’s value of a single dollar payment, from two years in the past, is  (1.06)2.  This  is  six  percent  interest  compounded  for  two  years.  Today’s  value of a single dollar payment, two  years in the future, is (1.06)-2, which  is six percent interest discounted for  two years. Thus, in either case, two years of interest is accounted for in  the  formula.  If  the  value  of  a  past  payment  is  compounded  forward  in  time,  the  two  years  is  positive.  If  the  value  of  future  payment  is  discounted  backward  in  time,  the  two  years is negative.

In calculating a present value, mortality terms are also used in discounting  future  payments.  The  payment  one  year  in  the  future  is  discounted  with the probability of living one year.  The payment two years in the future  is discounted with the probability of  living  two  years  to  collect  the  payment. By the same token, all the past  payments are also multiplied by probability  terms,  except  the  probability  of living from a past date to present  is one.

The above discussion shows there  is  no  inherent  difference  in  valuing  past  or  future  payments.  Past  payments,  therefore,  are  not  a  separate  asset, different in kind from future  payments,  unless  they  have  been  used as income for support or alimony  purposes. In that case, past payments  cannot be counted as both income and  asset,  in  order  to  avoid  “double  dipping.” But if past payments have not  been shared or used in alimony calculations, they are valued the same way  future payments are. Boyett makes no  distinction  between  past  and  future  payments.

Legally, each payment has a marital  portion  as  defined  under  Boyett,  whether past or future. The past payments did not disappear. Indeed, they  have more value than the future payments. If a marital asset is dissipated  by  one  party,  it  still  has  value,  in  terms  of  equitable  distribution.  The  marital  value  of  past  payments  dissipated by the annuitant does indeed  have  value,  and  this  value  is  calculated using the same methodology as  future pension payments.

PAC provides pension valuations, QDROs and actuarial reports for divorce attorneys and marriage dissolution mediators nationwide. Our Philadelphia offices are located in the suburb of Elkins Park, Pennsylvania, from where we serve the needs of legal professionals nationally, including east coast states such as New York, New Jersey, Virginia, North Carolina, Florida, Washington, D.C., and Maryland. Our Florida office located in Coral Gables, FL serves Florida family attorneys.
Pension Analysis Consultants, Inc.

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Mark K. Altschuler

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