One of the most difficult aspects in every divorce where there is a defined benefit pension is how to ensure the ex- spouse will receive his or her share of the pension if the participant spouse dies before the ex-spouse, who is referred to as the alternative payee. Unfortunately, many attorneys insist the participant take a survivorship option which usually significantly reduces the amount each spouse will receive for the pension while they are both living to cover the cost of the pension continuing at a reduced rate in the future when the participant dies.

Since a pension is considered an asset subject to equitable distribution it has a present -day value.  An appraisal can and should be conducted during the course of a divorce process. This determines not only what the monthly benefit will be in the future; (which helps with planning for both spouses) as well as calculating the actual value of the pension if the spouse is to receive using actuarial and coverture fractions.

If you have a present-day value you will know what the pension asset is worth. This is key. Then instead of using a survivor benefit the participant spouse can obtain life insurance in the amount of the entitlement. This insurance can decrease over the years as the pension is collected by the alternate payee. So, in essence, the alternate payee continues to receive their share of the monthly pension and if the spouse dies, they receive a lump sum of what the balance of their entitlement is. This protects both parties as the alternate payee will receive the asset in full and will not receive a windfall if the participant dies after having received payments over a substantial period of time. The participant can reduce the death benefit on a yearly basis as the pension is being paid, and either name someone else to receive those monies or they can reduce the premium as the policy limits reduce.

There are a number of life insurance professionals who specialize and can structure these policies and they will run illustrations of the costs and savings. I suggest using an experienced professional. There are various insurance vehicles. There are policies that have a savings or annuity- based components if the owner of the policy wants to explore these options.   It is imperative that the alternate payee is an owner of the policy so they can verify the policy remains in effect. This is the only way to guarantee compliance.

In this way both spouses will receive the maximum amount of the monthly benefit and the participant and the alternate payee will each receive their due which is the definition of justice.