Pension plans, which fall in the category of retirement plants known as “defined benefit plans,” present many pitfalls and challenges in divorce actions.  Many litigants do not realize that their pensions are considered “property” that is valued and divided in divorce.  In addition, valuing and distributing a pension plan can be more difficult than is the case with other types of assets. 

            Valuation of a pension plan is done to determine its present-day value, which can then be used to determine the amount, if any, that the other spouse may be entitled to receive as a lump sum payment.  In the case of Cunningham v. Cunningham, 171 N.C. App. 550 (2005), the North Carolina Court of Appeals ruled that the following methodology should be used to value defined benefit plans for the purposes of equitable distribution:

 

 First, the trial court must calculate the amount of  monthly pension payment the employee, assuming he retired on the date of  separation, will be entitled to receive at the later of the earliest retirement age or the date of  separation. This calculation must be made as of the date of separation and "shall not include contributions, years of service or compensation which may accrue after the date of separation." [N.C. Gen.
Stat. § 50-20.1(d)] Second, the trial court[,] [using an acceptable mortality table] must determine the employee-spouse's life expectancy as of the date of separation and use this figure to ascertain the probable number of months the employee-spouse will receive benefits under the plan. Third, the trial court, using an acceptable discount rate, must determine the then-present value of the pension as of the later of the date of separation or the earliest retirement date. Fourth, the trial court must discount the then-present value to the value as of the date of separation. In other words, determine the value as of the date of separation of the sum to be paid at the later of the date of separation or the earliest retirement date. . . . Finally, the trial court must reduce the present value to account for
contingencies such as involuntary or voluntary employee-spouse termination and insolvency of the pension plan. This calculation cannot be made with reference to any table or chart and rests within the sound discretion of the trial court.

Cunningham v. Cunningham at 556-557.

Obviously, the valuation process is complex.  In addition, because there is no precise method for ascertaining when an employee may cease his or her employment, the calculation of present-day value is inherently subjective.