Of the assets a family can accumulate over the course of a marriage, one of the biggest can be its retirement plan(s). Families going through the difficult process of a divorce can get hung up on how to divide their retirement plans. Figuring out how to divide a pension plan can be difficult because the pension plan’s value (what it pays out each month at retirement age) can depend on several moving parts, such as the number of years the spouse worked for the employer and accumulated benefits, market performance, or how the benefits were accumulated, (through contributions, a credit system, vesting schedule, etc.). It can be like hitting a moving target.
In a divorce, when dividing up a retirement plan, and in particular, a pension plan, courts can use a mathematical formula dubbed the ‘Janssen formula’, to divide a future pension benefit that isn’t known value at the time of the divorce. The formula is named after the Supreme Court decision, Janssen v. Janssen, 331 N.W.2d 752 (Minn. 1983), and is well-established in Minnesota caselaw, having been recognized and used in several well-known appeals court decisions.
The formula allows for division of future pension benefits between former spouses, only if and when the benefits are paid. The formula provides that the marital interest to be divided between former spouses, will be a fraction of that future benefit.
Those who know their math terminology may find that skill useful here. Under Janssen, the numerator is the number of years (or months) of marriage during which the employee spouse’s benefits were accumulated. The denominator is the number of years (or months) during which the benefits were accumulated prior to being paid. That fraction is multiplied by the future benefit amount, and the product is the marital share of the pension benefit. The marital share is then split between the former spouses so that each gets a share of the pension benefit.
Years/months of marriage and benefit accumulation
____________________________________________ x benefit amount = marital share
Years/months of benefit accumulation
Janssen is not the only way of dividing a pension between former spouses, but it offers the advantage of allowing any future gains or losses to the pension plan, to be credited to or taken from each spouse’s share. In some cases, parties may find it more fair and equitable to use a fixed figure in determining the marital interest in the pension benefit. For example, the parties may agree to determine a value to the pension benefit amount, as of a certain date, such as the date of the divorce, rather than risk further benefit accumulation or market performance affecting the benefit amount.
In determining a proper division of retirement benefits, it is important to have a good understanding of how a retirement benefit, especially future, undetermined benefits, can fairly and equitably be divided.
Contact Beyer & Simonson
If you are facing divorce and any of the divorce-related issues such as spousal maintenance, child support, child custody, property division, or domestic abuse matters, you need our experienced Minneapolis divorce attorneys to help you. Contact Beyer & Simonson in Edina, Minnesota today at (952) 303-6007.