Most of the time a pension benefit divided with a QDRO or Qualified Domestic Relations Order is divided using the coverture fraction or marital fraction method. What is this and why do we do it this way?
Coverture Fraction or Date of Divorce Split?
I’ll often see a divorce decree or divorce judgment that says to award the non-participant spouse 50% of a pension. The QDRO attorney has a couple of options in how to prepare the more detailed language of the Qualified Domestic Relations Order. Usually those options are to either simply split the pension as of date of divorce or to use a coverture fraction (or marital fraction as it may be called). The choice can have major consequences later on down the road.
A pension benefit is not determined until the date benefits actually commence payment. For example, an employee could have a pension benefit on the date of divorce that is valued at $1,000 per month upon retirement, assuming no further service is recorded. So, a 50% division as of date of divorce would simply give the other spouse $500 per month at retirement. However, most of the time I see the participant spouse is still employed and has many working years ahead of them. So, upon retirement, that $1,000 per month payment might grow to $2,000 per month or more due to continued service, cost of living adjustments, higher salaries, and so on.
Doing the Math
A coverture fraction is a way of deferring the math of the pension division until the benefits actually start being paid. It works like this. Assume that on date of divorce, the participant spouse has 20 years of service and a $1,000 per month payment. They continue working another 10 years and retire with a $2,000 per month payment.
(20 years married service) / (30 years total service) x $2,000/mo x 50% = $666.67/mo
Using a coverture fraction, in this example the non-participant former spouse receives an additional $166.67 per month for life over simply taking half as of date of divorce!
Coverture Fraction is Usually the Fairest Method
This may seem unfair to some, but most courts in most states have adopted the coverture fraction method as standard. This is because a portion of the lifetime benefit earned after divorce is based upon the marital service time, so it’s only fair that the other spouse have some small share of that increased benefit. Even so, the participant spouse receives the vast majority of the post-marital service increases.
This is why it is so important to engage a QDRO attorney early in the divorce process, so that the benefit awarded to each spouse can be explained and the decree or judgment can correctly reflect the intent of the parties or of the court.
Christopher Eggert of Eggert Law Firm is a Tulsa, Oklahoma QDRO attorney. Mr. Eggert prepares QDROs for parties and attorneys in all the states in which he is actively licensed, currently including Oklahoma, Oregon, Hawaii, and Washington.