| Example: Equitable
Distribution
You represent Wilma in a divorce. She is married
to Harold, who is retired and has a pension that
entitles him to a monthly benefit of $900.00 on
the date of separation. Harold has a life expectancy
of twenty years. The pension company is well-established,
and you believe a reasonable rate of return would
be 3.0% above 20-year Treasury bonds—or
9% compounded monthly. If the entire pension was
earned during marriage, what is its current value
as a marital asset?
Answer:
The annuity
table reveals a value of 111.1449540 assuming
twenty more years of service and a 9% rate. Multiplying
that by the monthly rate of $900.00 yields a present
value of $100,030.45. We can also use a spreadsheet.
Notice the importance of choosing the rate of
return:
| Annual rate
of return |
Multiple at
20 years |
Present value |
| 8% |
119.5542917 |
$107,598.86 |
| 8 ½% |
115.2308398 |
$103,707.76 |
| 9 ½% |
107.2810365 |
$96,552.93 |
| 10% |
103.6246187 |
$93,262.15 |
| 10 ½% |
100.1622742 |
$90,146.05 |
Notice some relevant aspects:
- A higher projected rate of return
results in a lower present value.
- A longer life expectancy produces
a lower present value.
If some of the pension was earned before marriage,
that reduces the portion allocable as marital
assets. Is the pension earned disproportionately
during later employment or early employment, or
level? In addition, if the pension ceases upon
the husband's death, only his life expectancy
is relevant. In Seifert
v. Seifert, 319 N.C. 367; 354 S.E.2d 506 (1987),
the court viewed this as a distributional factor,
not a valuation factor.
|
1.3.4 Present Value of an Annuity