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16.10 Cut-off Date and Marital Coverture Fraction

Whether ERISA or non-ERISA, the QDRO (or DRO) must state whether the alternate payee receives a portion of the benefit accrued as of a certain cut-off date or as of the participant's retirement date. The cutoff date is the point in time when the marriage ended, after which the nonemployee spouse has no further claim on assets earned by the employee. The cut-off date varies from jurisdiction to jurisdiction. In Pennsylvania, Oregon, and Maryland, the cut-off date is the date of marital separation. In New Jersey, it is the date the divorce complaint is filed of record. In New York, it is the date of service of the divorce complaint. In Florida, the cut-off date is the date of the final judgment of dissolution. In California and Colorado, the cut-off date is the date of divorce.9

The cut-off date is the date when the employee's pension benefits are stopped for purposes of calculating the other spouse's marital or community benefit. Benefits accrued after the cut-off date are excluded from any distribution to the alternate payee. However, there is a second step in determining the marital component of the pension in addition to the cut-off date for the accrued benefit. This step is called the marital coverture fraction. This fraction is used to insure that the alternate payee's claim is limited to the portion of the pension benefit acquired during the years of the marriage and excludes nonmarital years, such as years of service prior to marriage. The numerator in the fraction is the years of marital service. Marital service is service from the later of the date of hire or date of marriage, to the cut-off date.10 Different fractions are used in different states. If the cut-off date benefit is used, the denominator is total service up to the cut-off date. If the retirement date benefit is used, the denominator is total years of service. With the same numerators, the coverture fraction at retirement date is smaller than at the separation date, because the denominator is larger using a retirement date. Some states are vague about using the cut-off date or retirement date. Other states, such as Pennsylvania,11 Florida,12 and Maryland,13 use the cut-off benefit. In Virginia, the use of the cut-off benefit (date of separation in Virginia) is statutory.14 In Ohio, New York and Arkansas, the retirement date benefit and coverture fraction is used. 15Many states leave this issue open.

In New Jersey, the cut-off date benefit is used in present value calculations, while the retirement date benefit is used in QDROs. Most states that use the retirement date in QDROs use the current accrued benefit in pension valuations. Typically, states using the cut-off date benefit in pension valuations use the cut-off date benefit in QDROs. New Jersey is an exception.

Suppose the case law in a given jurisdiction holds that the nonemployee spouse is entitled to 50 percent of the benefit accrued during the marriage. The strategy for the nonemployee spouse is to argue that the retirement date benefit should be used, and that the use of the coverture fraction "separates out" the marital component. The nonemployee spouse should further argue that use of the benefit as of the date of divorce (or other cut-off date) does not protect the nonemployee spouse from inflation.

The strategy for the employee spouse is to argue that the increase in the benefit from the cut-off date until the retirement date is due to salary increases in addition to inflation, contributions to the plan and promotions, all due to post-marriage efforts of the employee spouse. Thus, the employee spouse will argue for use of the cut-off date benefit. In general, the retirement date benefit, multiplied by the coverture fraction at retirement, is greater than the cut-off date benefit, multiplied by the coverture fraction at the cut-off date. This is because the coverture fraction decreases as a function of time only, while the benefit increases as a function of time and salary in defined benefit plans, plus contributions, and earnings on those contributions in a defined contribution plan.


9 See James v. James, 950 P.2d 624, Co. Ct. of App., 1997.

10 One exception is in the state of Oregon, where the beginning date is the later of the date of hire or date of cohabitation. Troffo v. Troffo, 151 Or. App. 741, 951 P.2d 197 (1997).

11 Berrington v. Berrington, 534 Pa. 393, 633 A.2d 589 (1993).

12 Boyett v. Boyett, 703 So. 2d 451 (1997).

13 Quinn v. Quinn, 83 Md. App. 460, 575 A.2d 764 (1990).

14 Code of Virginia, 20-107.3 (G).

15 Hoyt v. Hoyt, 53 Ohio St. 3d 177, 559 N.E.2d 1292 (1990); Majauskas v. Majauskas, 61 N.Y. 2d 481,463 N.E.2d IS (1984); Brown v. Brown, 332 Ark. 235, 962 S.W.2d 810 (1998).

Reprinted with permission. 2007, Aspen Publishers, Inc., from Valuing Specific Assets in Divorce, edited by Robert D. Feder.

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