The Public is Improperly Advised of the Need to Purchase a Pension Valuation
The law in Colorado is clear that a pension valuation has a very limited purpose where it may be used in a divorce or legal separation where the pension plan Participant immediately pays the other spouse in cash (or other marital assets) for the other spouse's marital share of a pension plan.
If a pension valuation is used, then an
immediate distribution to the non-participant spouse must be made. In re Marriage of Hunt, 909
P.2d 525, 531 (Colo. 1995.) Also In re Marriage of Nordahl, 834 P.2d 838 (Colo.App. 1992.) Also In re
Marriage of James, 950 p.2d 624 (Colo.App. 1997.) and In re Marriage of Zappanti, 80 P.3d
889 (Colo.App. 2003.) These cases require an immediate distribution or marital property offset if a pension valuation is used to determine the “net
present value” of the pension.
That may happen in less than 1 out of 10,000 divorce cases, because the cash (or other marital assets) is not available to immediately pay the other spouse for a buy out of a marital portion of a pension plan.
In other words, you do not do a pension valuation unless the Parties agree to do an immediate Alternate Payee buyout of the pension.
A Judge will never make a ruling that an immediate offset must be made based on such a valuation.
And the pension valuations that I have seen are totally incorrect, then are grossly over-valued.
The real purpose of the valuation advice is to generate legal fees (and controversy between the Parties.)
Example - Portion of an August 2015 Hearing
In August 2015 I participated in a Boulder County hearing where the pension valuation "expert" represented Wife and testified that (in round numbers):
- Husband's present pension had about $300,000 in contributions;
- Husband is expected to live and get pension payments for another 26 years to age 80;
- Husband could expect cost of living increases in his pension payments;
- The present value of his expected stream of pension payments is about $1.2 million;
- Wife's is entitled to half of the marital portion of the pension (a small portion was separate); and
- Husband should pay for life insurance on the amount going to his former Wife, as guarantor.
That was totally bogus because:
- Husband could die and get $0 from his pension, thus how can it be worth $1.2 million?
- Expert improperly used a discounted cash flow similar to valuing a guaranteed 30 year mortgage.
- Neither Husband nor Wife can use the pension as collateral or can liquidate it. They may get $0.
- Under Colorado law, the valuation is used only for an immediate cash payment or offset.
- There were essentially no martial assets to pay Wife, in accordance with Colorado law;
- Husband is not a guarantor of the pension, thus he should not have to pay for life insurance.
Expert did not get what he asked for. No life insurance, no immediate payment or offset because Husband had no assets to pay.
Expert's fee was $3,500.
Expert also provided a resume showing that he was admitted as a Colorado attorney. He did not disclose that he had been inactive and could not practice law since April 2014.
In Summary, You Don't Need a Pension Plan Valuation
The advice that I am hearing about the necessity of a pension valuation is a misrepresentation designed to get your money. It misleads people involved in a divorce, thereby straining an already difficult relationship.
Both attorneys and non-attorneys (such as mediators who want to be attorneys, but are not) are improperly advising their clients of the need to purchase a pension valuation when you are involved with a Colorado divorce or legal separation.
And the pension valuations that I am seeing and hearing about are totally bogus. Way overvalued, in part because of the reasons I listed above in my Boulder County case discussion.
Unless the Participant can pay cash or offset with other marital assets, you can't use a pension valuation. And you don't get life insurance as a way to guarantee the Alternate Payee's portion.
No one is a guarantor of a pension. Not even the pension plan itself. (Check the bankruptcy courts.)
I can answer specific questions, so ask.