How to Divide Your Premarital Cash Balance Retirement Plan in New Jersey Divorce

If you’re currently separated or considering divorce and started your cash balance retirement plan before marriage, this post is for you.

I’ve recently found that clients – and even other divorce lawyers – are not familiar with how cash balance plans work.   These plans differ slightly from traditional defined benefit pension plans.

It’s therefore very important you know how your spouse’s share is typically determined and how to protect your premarital interest.

How does a cash balance retirement plan work?

A cash balance plan, also called a cash balance pension plan, is a form of defined benefit pension plan.  They’re becoming more widespread among larger employers.

You typically start receiving your benefits at age 65,  but it could be as early as age 55 depending on the employer.

You don’t contribute any of your own money to cash balance pension plans.  Instead, your pension account receives an annual credit based on your salary each year.

And the amount you receive is generally based on total years of service to the company and your salary over the final years before retirement.

How can you retain your premarital interest when the plan is divided in divorce?

In divorce, your spouse is legally entitled to share only in the “marital value” of your cash balance pension plan.

Under New Jersey law, marital assets are subject to “equitable distribution” in divorce.  More on that here

Many divorcing spouses, however, agree to simply divide a particular marital asset 50-50.  With retirement plans, including cash balance plans, it’s the “marital value” that gets divided.

So, if you started in the cash balance pension plan before you were married, it’s essential to include language in your divorce agreement to ensure you retain the “premarital” value and that only the “marital value” gets divided.

The language in your divorce agreement directing how much your spouse will receive at your designated retirement age will generally be implemented by the administrator of your pension plan.

One method often used to calculate “marital value” for a cash balance pension plan started before marriage is called the “coverture” method.  Simply divide the length of time you participated in the pension plan while married by the total length of employment during which the pension was earned.

This effectively omits your premarital interest from the calculation.  The amount you get from dividing those two numbers will then be multiplied by the share your spouse is to receive.

For example:

5 (years participated in pension plan while married) ÷ 10 (total years contributed to pension).  And you’ve agreed your spouse is to receive 50%

Here, the result of 5  ÷ 10 is .50.  In other words, 50% percent of your pension plan is marital.  So, your spouse would receive 50% of .50, or 25% of the future benefit accrued.

Therefore, in this example, your divorce agreement would provide for your spouse to receive 50% of the future benefit accrued as a result of your participation in the plan from the date of marriage through the date of filing of the divorce complaint (or an alternative agreed date) based on coverture fraction.  Your spouse’s share is typically divided by way of a Qualified Domestic Relations Order (“QDRO”).   More on QDROs here.

Be sure your divorce agreement also includes certain provisions to avoid big problems down the road.  These might include, for instance, survivor benefits if you die before retirement and how and when your spouse will receive his or her benefits.

For pension plans with substantial value

If you have a cash balance pension plan of substantial value, you should consider having your premarital interest calculated so you benefit from the earnings accrued on that interest.  This calculation is typically done by a forensic accountant and could be extremely costly with all the time involved.  An experienced  divorce and family lawyer can advise you on the method that works best for you.

For more information about how to divide your cash balance pension or other retirement plans in divorce, please click here.

 

 

 

The Top 4 Negotiating Skills for Success at Work and Home

When we think of negotiations, what often comes to mind are the bigger events like salary negotiations or business deals.

But we often don’t realize that we negotiate all the time.  For instance, you might negotiate with your spouse who does the cleaning and who pays the bills.

Or we negotiate with a friend on where to go to dinner or which movie to see.  We negotiate when buying a home or a car.

We even negotiate with our kids.  When they’re younger, they might come to us begging for the newest toy or video game.   And as teens, negotiations might involve curfew times or having their own car.

Therefore, knowing how to skillfully negotiate can make for good parenting and rewarding careers.  By the same token, successfully negotiating with those important to us can strengthen these relationships and bring us closer to them.

Here are the top four most important negotiating skills for success at work and at home.

1.          What do you most want to achieve?

Before starting any negotiation, clarify the end result you want.  Be clear on the outcome that’s most important to you.

And it’s always a good idea to have a Plan B for getting what you want.  This will give you more confidence in the negotiation.  You also generally find that when you’re free to walk away, the other side is more likely to give in.

2.          Increase the likelihood of getting a yes.

You might have heard the term “leverage” in negotiations.   “Leverage” generally means an actual or perceived advantage in a negotiation.

Leverage generally more often comes into play when dealing with someone you know fairly well, for instance, a friend or family member.  We tend to know what’s most likely to influence them.

Here’s an example.   When our daughter turned 17, she repeatedly asked to get her own car.   My husband and I refused. We emphasized she had use of our cars when available and financial resources needed to be preserved for the hefty college costs coming up in the Fall.  And anyway, as we pointed out, she wouldn’t be able to have a car her first year of college.

But as it turns out, our daughter knew best.  Knowing our son was about to start driving too, she pointed out the benefits of having a car available for him.   And sure enough, when our son got his drivers permit, we relented and got our daughter a reliable used car.   And with four drivers in the family, it turned out to be a good decision after all.  Perhaps without knowing about leverage, our daughter had used hers to influence our decision in her favor.

3.          Learn what the other person wants or needs.

In any negotiation, large or small, the person with the most information generally gets what they want.  So, the more you can learn about what the other person needs or wants, the better your position.

It’s important not to assume you know.  If you simply guess at what they want or need, you can easily derail the negotiation.

Instead, begin by asking the other party open-ended questions and listen very carefully.  Listen to the words as well as tone, body language and by reading between the lines.

Here’s an example.  I recently had a client who wanted a divorce.  He and his wife had a contentious relationship and had two young daughters.

My client wanted to spend as much time with his daughters as he could, and he was concerned his wife would object out of anger for him.

I coached him on how to effectively communicate and negotiate with his wife.  When he began communicating with her, he learned his wife shared his concern about how the divorce would impact the kids.  He was also surprised to learn his wife was often frustrated by her lack of “free time.”

As a result, my client and his wife were able to successfully reach a co-parenting agreement of essentially equal time with the kids.  This satisfied his desire to spend more time with them, and hers for more free time.  Most importantly, the kids adjusted reasonably well to the divorce as they were regularly and often spending time with both parents.  This leads into the final important tip…

4.         Choose the right communication.

 Before communicating in a negotiation, it’s important to first decide what you want to convey.  Then you can choose the right words – as well as tone of voice, facial expressions, and body language – to show specifically the benefit to the other person.

Essentially, every negotiation, big or small, comes down to knowing what you want to achieve and planning and executing to achieve it.

Thanks for reading!  Please share this post with others who might find it helpful. 

 

How Much Alimony Could You be Facing Under the New Federal Tax Law?

Under the new federal tax law, can no longer deduct your alimony payments on your federal income tax returns.

So, if you’re separated or considering divorce, it’s important to know what kind of potential alimony obligation you might be facing, if any.

The vast majority of divorce cases in New Jersey is settled out of court without ever going before a judge.

But these agreements still need to include properly drafted alimony provisions that conform to New Jersey law.

How do you know if you’ll have to pay alimony?

Generally, you could have to pay alimony if your spouse was financially dependent on your earnings during the marriage.

Sometimes the answer is not so clear.  An experienced divorce and family lawyer could advise you if New Jersey alimony law would require you to pay alimony to your spouse.

How much alimony can you expect to pay under the new federal tax law?

Unlike child support, there is no software program that calculates alimony in New Jersey.

Rather, New Jersey alimony law lists several factors to be considered when determining the appropriate amount of alimony.  These include the actual need and ability to pay, the age and health of each spouse, and each spouse’s earning capacities and educa­tional levels.

But there’s still a way to get an idea of how much alimony you might expect to pay.

Alimony amounts are now generally much lower to make up for the lack of federal income tax deduction.  And under a general “rule of thumb,” the amount of alimony is calculated as roughly 25% of the difference between the gross incomes of each spouse.

This rule of thumb really only works, however, when both spouses are close to a blended federal tax rate of about 25%.  It should also be measured against the alimony factors to see if the calculated figure makes sense in your particular circumstances.

Thanks for reading!  Please call or click here to schedule a personalized consultation and learn how to settle your divorce or family matter out of court.

Eight Powerful Ways to Instantly Diffuse Insults at Work and Home

Disagreements are inevitable in life.   But we can also often face all sorts of difficult – and outright toxic – behaviors in others, both at work with co-workers or business associates and at home with family members.

Unless you know how to effectively respond to insults or disrespectful comments, conflicts can quickly escalate and relationships can become irreparably damaged.

Suppose, for instance, you make a proposal during a business negotiation, and your counterpart haughtily retorts “You can’t be serious!”  Or perhaps at home, your spouse chides you to “stop being so sensitive.”

Insults like these can easily trigger an emotional reaction and escalate conflicts.  In a business negotiation, reacting emotionally can also give your counterpart the upper hand.

Below are 8 powerful ways to diffuse insults at work and home:

1.          Keep your cool. 

Our default is to become defensive when faced with angry or critical remarks.  But reacting defensively will only ignite the situation.  Therefore, it’s important to stay calm when faced with angry or critical remarks.   It can often be helpful to take a few deep breaths and take our ego out of the equation. . .

2.          Remember it’s never about you. 

People who hurl insults are essentially insecure and feel a need to control others or situations.

3.          Ignore the words.

No matter how insulting, disrespectful, or threatening the other person is, disregard what they’re actually saying.  After all, when someone’s upset, chances are they’re not likely to mean what they’re actually saying.  Instead, stay focused on ultimately directing the result you want.

4.          Pause before you respond.

There’s a very big difference between reacting and responding.  Responding is intentional, whereas reacting is a knee-jerk emotional response.

Remembering that you have the power to choose your response, decide exactly what you want to say.  Choose your words deliberately and intentionally.  Deliver your message with a firm, yet calm tone of voice and assertive body language.

5.          Call it what it is. 

“Power plays” are common, particularly in the workplace and business negotiations.  It can be helpful to call out the power play.  For instance, when your negotiation counterpart haughtily retorts “You can’t be serious!”  you might try “Actually, I am serious.  How about giving me a chance to finish and clarify what I’m saying?”

6.          Interrupt with a break. 

If things become particularly heated, taking a break can offer a much-needed respite to gain control of your emotions.  Before taking a break, you might suggest to the other person a time to continue the discussion.

 7.          Divert the insult by shifting the focus back on topic.

If the other person accuses you of being overly sensitive, you might try saying “how about we avoid personal judgments and focus on the solution to this problem?”

8.          Inject humor.

Using humor when someone insults you can be an effective way to diffuse a dispute.  For instance, you might respond with something like “Wow, I didn’t know that!  Thank you so much for helping me see the light!”

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