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Financial Issues This forum is for discussing any of the financial issues involved in your divorce.

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Old 09-18-2010, 04:08 PM
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Default Military Pension and Severence Pay

I would like to ask a few questions in hopes of clearing up a few grey areas for military pensions and severence pay.
For the time you are married or common law they are legally entitled to half your military pension correct?
If both parties agree on a cash out for the pension how is that calculated?
If you cannot afford a cash out then how is the pension settled? Is there half of the pension not touchable until a certain age or timeframe?
Are they entitled to half of your severence pay?
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Old 09-18-2010, 04:40 PM
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The other party is entitled to a maximum of half of the pension that was built up during the marriage.

So, for example, if you've been in the Mob for 20 years and were married for 10 of those years, the spouse is entitled to about 1/2 (her entitlement) of 1/2 (10 of the 20 years) of your pension. Not the real pension value, mind you, but the "actuarial" value that must be computed and fought over and that keeps people in the business employed.

Either (or both) of you can write to the pension people for a valuation and they will provide an estimate of what they think the cashout will be. You can accept that and go from there, or fight over it like a lot of people do. Like most things, there's no black-and-white formula.

As for when it's touchable, that's really up to the financial institution in which the cashout is deposited. It must be deposited into a "locked in" retirement vehicle, but some banks will release the funds at 50, some at 55... It's up to them. If a smart ex needs the cash, they will shop around for the institution that will release the funds to them the soonest.

As for buying it out, that's all about negotiation. Some people really need money up-front and will let you buy them out for $0.25 on the dollar. Some will go for $0.50, others $0.80, others hold out for 1-to-1 and others even want more. From what I've been able to gather, a decent buyout is around $0.70 on the dollar... The reason somone should be willing to accept less than 1:1 is because they can use the money right away and they don't have to pay tax on it. The reason the member (pension plan member) should seek less than 1:1 is because they will have to pay tax (or already have) on the money they use to buy the spouse out.

In my case, I offered my ex $100,000 cash to walk away from my pension and she declined: All she can see is the big $$$ and refuses to think about the advantages of immediate access and tax savings. Down the road when she can finally access the funds it will be taxable income, and will count in SS calculations... her loss in the long run. Personally, I think an ex would be insane (ahem) to refuse a buyout, but that's just me.

Severance? Unfortunately, yes. I'm not sure how it works though.

Cheers!

Gary (CF for 28 years now)
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