Troyan, A Legendary Actuarial Consulting Firm, For Pension Evaluations.

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We specialize in retirement plan analysis for divorce & economic loss matters

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Pension Evaluation
Basic Pension Principles
Community Property
Dividing Marital or Community Property
Divorce & Retirement FAQs
Equitable Distribution
Experience with Your Plan
Pension Evaluation Issues
Retirement Terms
Social Security Offsets
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State Listing of Statuses Disallowing Personal Identities In QDROs
State Analysis of IRA Exemptions
Collection Laws and Exemptions by State
Tax Treatment in Pension Evaluation
Distribution from Qualified Plans
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We determine the present value of defined benefit pension plans and defined contribution retirement plans for the court, family law attorneys, mediators, collaborators, divorcing couples or retirees. Our report shows the present value of the entire pension as well as the portion earned during marriage. When everyone understands the report, unnecessary confrontations are avoided. Your report will be backed by Troyan, Inc.® the nation's expert in pension Evaluations who will testify to the report if needed.

Defined Benefit Plans - Determining Present Value

A Defined Benefit plan is a traditional pension plan in which there will be a monthly amount payable at retirement based upon a formula as described in the plan's Summary Plan Description. When calculating the present value of pension benefits, many factors affect the ultimate determination of this value. In general, if a person is young, has many years of deferral until the commencement of pension benefits and the payments begin at a later age, such as age 65, these factors will result in a lower present value. Conversely, if the person is close to retirement age and can begin collection of benefits at a relatively young age, the value would tend to be higher because the payments commence earlier and continue for many more years. The other major factor in determining the value is the choice of an interest rate assumption. Our firm currently uses the immediate interest rates in accordance with Actuarial Table No. 34.

Defined Contribution Plans - Determining Present Value

Defined Contribution Plans consist of any type of tax deferred plan which has individual accounts for participants. Contributions into the account may come from the employer and/or employee. Investment risk is borne by the employee. The common types of defined contribution plans are profit-sharing, 401(k), thrift/savings, Keogh and Target plans. The value of these plans is based upon the current value of invested assets at any given point in time. When examining these plans for equitable distribution purposes, the value is relatively easy to determine when all of the value has been earned during the marriage. If a portion of the account was in existence prior to the marriage, the pre-marital portion has to be established. There are several methods used to determine the marital and non-marital portions of an account. The Tracing / Segregation Method are the most accurate and preferred methods used to determine the marital and non-marital portions. Unfortunately, the Tracing Method requires an analysis of all account statements from the date of marriage to the date of the action for divorce. Often these records are not available. Alternative methods of determining the marital portion of a defined contribution plan account are the Subtraction Method and the Coverture Method. The Subtraction Method is calculated by determining the account balance as of the Marital Asset Cutoff Date and subtracting from it, the account balance as of the Date of Marriage. The difference in the balances is the portion of the account that accumulated during the marriage. The Coverture Method is calculated by dividing the number of years married while participating in the plan by the total years in the plan. This calculates a Coverture Fraction, which is then multiplied by the account balance on the Evaluation date.

Establishing the value of a defined contribution plan is easy. Just read the statement. If the account balance has been accumulated entirely during the marriage, the parties may use the balance for the appropriate date and decide how it is to be divided. Our service become necessary when there was a balance in the account prior or subsequent to the marriage.

Utilizing the Tracing Method is without a doubt, the most accurate method to determine the marital and non-marital portions of defined contribution plan accounts. This method examines the actual investment experience of the account during the whole marital period. Any earnings or losses are determined on a proportionate basis from quarter to quarter.

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Pension Evaluations


The way in which you value a pension for divorce depends on the type of retirement plan. There are two basic types of retirement plans: “defined contribution” retirement plans (like 401k’s, 403b’s, IRA’s, 457’s, and TSP’s) and b) “defined benefit” retirement plans, which are often referred to simply as “pensions“. These defined benefit pensions are common among public employees, whether federal, state, or city employees or public school teachers. They are less common than they used to be among private employers.

Dividing defined contribution plans, like 401k’s, is simple conceptually and mathematically. (See below, “Dividing defined contribution retirement plans in divorce”.) Dividing defined benefit (“pension”) retirement plans between divorcing spouses is much more complicated.

To divide a pension, one must choose between two different methods for sharing the pension:

1) The parties can share the future stream of monthly payments as they are distributed during retirement. This is sometimes called the “deferred distribution method.” QDRO

2) The parties can divide the “present value” of the pension at the time of divorce, sometimes called the “immediate offset method.” In this case, the pension participant “buys out” the non-participant, by transferring other assets, such as house equity or cash, to the non-participant spouse at the time of divorce. In exchange for this “buy out” transfer of assets, the non-participant gives up any rights to a share of future pension payments but gets money or assets immediately. The pension participant then keeps all future pension benefit 100% payments for him- or herself. Pension Evaluation

Calculating the future monthly benefit of a pension

The future monthly benefit of defined benefit pension plans is determined by a specific formula or calculator provided by the employer. For public employees, these formulas often include the participant’s age at retirement, the number of years of participation in the pension plan, and an average of the highest years of salary, and a retirement factor. Unlike a 401k or 403b, the value of a pension is completely unrelated to the amount of money that has been withheld from paychecks or pooled in an account.

Dividing monthly pension benefits as they are distributed during retirement

The future monthly benefits of a defined benefit pension plan can be shared in the future, during retirement, using a (Q)DRO (“(Qualified) Domestic Relations Order”). This document–typically written by a divorce lawyer or accountant and signed by a judge as part of the divorce order–gives specific instructions to the pension administrator as to how future pension payments from the pension should be divided between the pension participant and the ex-spouse.

There are two common methods for determining future pension benefits with a DRO. Different states have different rules about which method can be applied.

1) The “accrued” (also called “bright line” or “direct tracing”) method considers only the value of benefits accrued specifically during the marital years. If these marital years are during the early years of pension plan participation, this often results in less of the eventual pension being shared with the alternate payee, the ex-spouse. This is because many pension plans use formulas that devalue the early years of plan participation and disproportionately value the final years of plan participation. Many states do not allow this method of dividing a pension.

2) The “relative time” (also called “projected” or “coverture” or “fractional rule allocation”) method is required by law in most states, and it is recommended by the American Law Institute in Principles of the Law of Family Dissolution: Analysis and Recommendations (§ 4.08). This method values each year of pension plan participation equally, based on the idea that the marital years of pension plan participation lay a foundation of years of service that allow a participant to reach the high years of service, eventually, that result in high pension benefits (“marital foundation theory”). Thus, if a parties is married for 15 years, and the spouse with the pension ends up participating for 30 years, the “marital portion” (or “coverture factor”) of the total benefit is 15/30, which is equal to 50%. This 50% of the eventual benefits thus “belong” to the marriage. The non-pension-participant spouse would get one half of this marital portion of the pension, which would be 25% of each monthly pension benefit payment at retirement.

Dividing a defined benefit pension by calculating a present value

In some situations a parties may not want to share future, monthly pension benefits but would rather determine the value of a pension in the present, at the moment of divorce, and use this value to offset other assets being kept by a spouse.

Once you have determined a present value for the pension, this value can be treated just like the value of any marital asset that is divided at the time of divorce. This allows the pension-participant spouse to keep all the future monthly benefits from the pension, if they want, and allows the non-participant spouse to keep other marital assets with equivalent value.

This “buy out” method can be particularly helpful if one spouse wants to keep the marital house and the other spouse wants to keep the pension. If a party has $500,000 equity in their house, and one spouse has a pension with a present value of $500,000, one spouse can keep the house and the other spouse can keep the entire pension without any cash changing hands.

Dividing defined contribution retirement plans in divorce

“Defined contribution retirement plans” include 401k’s, 403b’s, 457’s, TSP’s, and IRA’s. In terms of value, these are much like savings accounts. The value of the plan at any given time is simply the account balance of the plan at that time, so there is no need to calculate a present value for them.

In divorce, the value of the account is typically divided into a pre-marital portion–the money accumulated in the retirement account before marriage–and a marital portion, which is the amount of money accumulated in the account during marriage. This marital portion of the account is then treated as marital property, and is divided, along with other assets, between spouses at the time of divorce. A special document, called a QDRO (for private employer retirement plans) or a DRO (for public employee retirement plans), tells the pension administrator how to divide up the 401k or 403b account. These funds can be moved directly from the retirement account of one spouse to a retirement account of the other spouse, so that the money does not become taxable–it is always in a retirement account. At IRC 408 an IRA transfer Order is required for Divorce purposes. Troyan QDRO services IRA QDRO is as required for IRA’s that are divided.

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