What is the Marital Share Formula and How Does It Work?

When dividing a pension many times the division is described as a formula, which is defined as, some percent times a fraction, in which the numerator of the fraction is the total number of months of creditable service in the retirement plan earned during the marriage and the denominator is the total number of months of creditable service in the retirement plan earned as of the date of retirement. Some jurisdictions call this the “coverture fraction.” 

For those who are not currently using algebra terms in their daily language, the numerator is the top number in a fraction and the denominator is the bottom number in the fraction. When the numerator is divided into the denominator the result is a percent (or quotient for those being technical, but for the purposes of the marital share fraction, it’s a percent).

And, for those that need a numerical example, let’s say a person works 120 months at a job earning credit in the retirement system, and during that time, they were married to their spouse for 60 months. The fraction would be 60 / 120 = 50%. Therefore, 50% of the pension is marital, and 50% is non-marital. In a divorce circumstance, typically only the marital portion is being divided, so the participant would retain their 50% non-marital portion for themselves, and the 50% marital portion would be available to divide with the former spouse.

What about the common scenario where the person who has the pension is still working for that employer, earning new credit in the retirement system after the marriage, how does this formula account for that?

The way the court order is drafted is by using the definition of the fraction underlined in the first paragraph. This language allows the retirement plan to be responsible for doing the math when the participant retires. While the numerator can be determined as of the date of marriage, the denominator won’t be. Therefore, the retirement plan will use the instructions in the QDRO when the participant retires, when the information is known.

Going back to the 60 / 120 scenario. Let’s say the participant continues to work for this employer another 120 months after the divorce. Now the fraction is 60 / 240, or 25% is marital. The definition of the fraction being provided to the retirement plan is what allows for the plan to properly account for the former spouse’s share as of the date of retirement, which usually is not known as of the divorce.

But wait, that math seems to highly benefit the participant. Why would a former spouse agree to this?

The marital share fraction, once reduced to a percent is multiplied by the total benefit earned by the participant. The total benefit earned by the participant is typically calculated using some combination of the length of the employment and the highest or final salary earned. For participants who continue to work after the date of divorce, that means they are working toward a larger retirement benefit.

For former spouses, this means that while the marital percent of the benefit may be decreasing as the participant continues to work after the divorce, the benefit that the marital percent is multiplied by is larger due to increased time spent earning credit in the pension system and a larger salary that is used to compute the participant’s total benefit.

So the way to think about it is that if the benefit is calculated at the time of the divorce, the former spouse may be receiving a larger share of a smaller benefit, however, when the calculation is redone at the time the participant retires, the former spouse is receiving a smaller share of a larger benefit. Proportionally, the math works out to limit the benefit payment to the former spouse to amount attributable to the marriage. 

Many states have their own version of this formula. Some call it the marital share formula, others refer to it based on the case in which the formula was adopted. For example in Maryland it is referred to as the Bangs formula. This is one way to calculate the former spouse’s interest in a pension due to a divorce. Depending on the circumstances this might not be the appropriate method to divide the pension. It is best to discuss the options with your local divorce counsel.

 It is also important to keep in mind that some plans will place a limit on the amount that can be awarded to a former spouse. Specifically, the military limits it to the benefit the member has earned as of the date of divorce, so that all of the increased service time and promotion benefits are retained solely by the member. In such cases, it is important to alter the fraction as described above so that the denominator does not continue to increase. Alternatively, the International Monetary Fund limits the benefit awarded to the former spouse to be 50% of the marital share. Thus, if the parties wanted to award a larger percent to the former spouse say to offset for a different marital property, they would not be able to award the former spouse something like 65% of the marital share of the pension because of the plan’s limitations.

Dealing with pensions and retirement assets can be difficult, and knowing the plan’s rules as well as your state’s rules with respect thereto is key to a successful negotiation. If you’re looking for help dealing with a retirement plan or understanding the plan’s rules, please call us at 240-396-4373 or email us at qdro@markhamlegal.com to see if we can help.