How to Determine the Percentage in a QDRO
American Journal of Family Law - Winter 2012
by Mark Altschuler

Many states, such as New Jersey, Pennsylvania, New York, and California, use a coverture approach in terms of dividing a pension in a deferred distribution scheme (QDRO).

Under coverture, the marital portion is the benefit at retirement, times the coverture fraction, rather than the benefit frozen as of the cut-off date. The latter method is called the bright line approach, and is followed in Florida, Virginia, Texas, North Carolina, and other states. For a general survey of bright line vs. coverture states, please see Bright Line and Coverture in Divorce Pension Valuations and Distribution, American Journal of Family Law, Vol. 23, Number 3, Fall 2009.

The coverture fraction is defined by marital service divided by total service. Under the coverture formula, the benefit continues to grow, as shown by the chart below. This is because the benefit increases faster than the coverture fraction decreases, due the fact that the benefit increases with both salary and service, but the coverture fraction decreases due to service only. The benefit as of cut-off in 2005 is assumed to be $2,049 per month, and the benefit as of retirement in 2017 is projected to be $4,416 per month. The coverture fraction as of retirement is 25 years of marital service (1980 to 2005) divided by 37 years of total service (1980 to 2017), which equals .6757.

Because of this growth, counsel for the non-employee spouse may find that deferred distribution (qdro) is preferable, especially in cases where the pension is certain not to be terminated or frozen, such as government and teachers’ pensions. If all other assets are offset, the non-employee spouse is assigned a percentage (usually between 40 and 60 percent) of the coverture portion of the pension, under the coverture formula. Suppose, however, it is not possible to offset all other assets, and the non-employee spouse is owed a certain fixed dollar amount of the pension, such as $80,000. Ideally, the non-employee spouse would receive this amount in cash, as part of an immediate offset.

Cash Lacking for Immediate Offset

Suppose, however, the employee spouse lacks the cash for the immediate offset. It is advisable that the fixed dollar amount of $80,000 is not put into the property settlement agreement, since this is contrary to coverture and limits the non-employee’s share. Assume the marital present value is $295,055 (based upon the 3% cola), as shown in the sample report on the following page. If the non-employee spouse is owed $80,000, this is equivalent to $80,000/$295,055, or 27.11%. Thus, the property settlement agreement should award the non-employee spouse 27.11% of the marital portion, as defined by the coverture formula. In fact, this was the exact method used by the New Jersey Appellate Court in the Risoldi case. In Risoldi, after offset calculations, Wife was owed $21,671 of Husband’s pension, under a QDRO. Since the marital value of the pension was $100,342, Wife was eventually awarded 22 percent ($21,671/$100,342, and then rounding) of the coverture portion of the pension, by the Appellate Court.

Pension Valuation Report
With COLA Illustration Per Hayden v. Hayden, 284 N.J. Super 418, 665 A.2d 772 (1995)
March 2009

PREPARED FOR: Family Lawyer
Name: Sample Pensioner
Plan: State of New Jersey TPAF
Employer: School District
Birth Date: 6/30/1957 Retirement Age: 60
Entry Date: 6/30/1980 Retirement Date: 7/1/2017
Marriage Date: 6/30/1980 Status: Active
Cut-off Date: 6/30/2005 Sex: Female
Valuation Date: 9/22/2008 Age: 51
(1) Accrued monthly pension at cut-off date $2,049
(2) Annuity Factor (present value of $1 per year annuity) 8.60216
(3) Present Value (12 x Item 1 x Item 2) $211,510
(4) Length of plan service while married 24.99932
(5) Length of plan service to cut-off date 24.99932
(6) Coverture fraction (Item 4 ÷ Item 5) 1.00000
(7) Marital present value as of 6/30/2008 (Item 3 x Item 6) $211,510
(8) Marital employee contributions/account $0
(9) Marital present value as of 6/30/2008 (Item 3 x Item 6) $211,510
Annual Percentage Increase Percent Value
Post-Retirement Cost-of-Living Benefit Full Pension Marital Coverture Portion of Pension
0.00% $211,510 $211,510
1.00% $234,449 $234,449
2.00% $261,902 $261,902
3.00% $295,055 $295,055
4.00% $335,473 $335,473
5.00% $385,239 $385,239
Pension form: Life Annuity
IRC Interest Rate 4.69% for 5 years; 5.03% for 15 years; then 5.06%
Mortality table: RP-2000 '08
Marital portion contingent on jurisdictional cut-off date.
Calculations in accordance with generally accepted actuarial standards

If the fixed dollar amount of $80,000 is included in the property settlement agreement, this is actuarially equivalent to 27.11% of the benefit accrued as of June 30, 2005, the date of complaint. An argument can then be made that this fixes the benefit awarded to the non-employee spouse, without the growth that in included in the coverture formula, as shown in the chart on the first page. Therefore the dollar amount of $80,000 should be converted to a percentage of the coverture benefit, and the percentage should be inserted into the agreement, not the dollar amount.

While Risoldi is a New Jersey case, this hybrid method is applicable in any state that follows the coverture method. The lack of enough cash for immediate offset is not reason to award 50% in a QDRO. Once a valuation is performed, that valuation can be used for purpose of determining the QDRO percentage, as well as for purpose of immediate offset. Once the percentage is determined, that percentage (27.11 percent is this example) should be inserted into the marital settlement agreement, not the dollar value that results from a pension valuation. Use of the dollar value, as discussed above, negates the coverture approach and creates an argument to fixing the benefit. An example of improperly inserting a dollar value into a marital settlement agreement is the Abel case in New Jersey. In fact, Abel is the perfect storm of misuse of a pension valuation, both in terms of not using the valuation to determine the percentage, and then inserting the dollar value, which negates use of a percentage.

Once a pension valuation is performed, that number can be used to determine the QDRO percentage under coverture, as discussed above, even if an immediate offset is not possible. However, in Abel, the QDRO award was 50 percent of the coverture portion, even though there was a valuation. Perhaps an offset was not possible, forcing the award to be 50 percent. The problem was that in addition to the 50 percent award, the dollar value of the award was also listed in the agreement, leading to a dispute.

If the non-employee spouse is awarded 50 percent of the marital portion, there is no need to put in any dollar amount based on a pension valuation. The percentage has already been determined. Any reference to a fixed dollar amount is superfluous and can only raise issues, as is the case in Abel. In Abel, Wife was awarded 50 percent of the marital portion of the GPU pension, which was valued at $91,049.76. If the property settlement agreement has left out the present value figure, the qdro would automatically be drafted under coverture. However, because of the inclusion of the marital present value of $91,049.76, Husband objected to the coverture formula and argued Wife’s portion should be limited to one half of $91,049.76. The trial court agreed with Husband, and Wife appealed.

The Appellate Court reasoned that since all other assets were divided equally, and since the pension is also divided equally in Abel, with no trade-off against other assets, the intent was to award Wife “an equal division of the coverture fraction of defendant’s entire pension benefit.” This, of course, makes sense. If Wife were awarded, for example, a set dollar amount of $30,000, based on offset of assets, it could be reasoned that was the intent of the parties. However, the Court found that the inclusion of the fixed dollar amount “renders the PSA subject to an interpretation supportive of defendant’s (Husband’s) position.” The Court was unable to come to a decision and remanded, with burden of proof on Husband.


Therefore, the conclusion to draw from Abel is twofold. First, if the award is 50% or any other percent of the marital portion, there is no reason whatsoever to include the present value of the pension. It is this inclusion that helped Husband’s argument. Now, suppose there is an offset of assets and the non-employee spouse is awarded less than 50%. It is still a bad idea to include the pension valuation result in a property settlement agreement for purpose of QDRO, because this may limit the non-employee spouse’s share to a something less than the coverture award. In the example above, if the award in the agreement after the offset was $80,000, this is equivalent to 27.11% of the benefit accrued as of date of complaint. As discussed above, this limits the Alternate Payee’s to a fixed benefit, without the growth under the coverture formula. Therefore, even if there is an offset, and the award is less than 50%, attorney for the non-employee spouse should be sure to include a percentage in a property settlement, not a fixed dollar amount.

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.
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