As this pandemic rages on, one story not getting enough attention is the impact of COVID-19 on couples and divorce.
Some stories suggest that with courts having been closed and couples spending more time at home together, many of them may have hit the pause button on moving forward with their divorce. With these folks no longer being pulled in so many different directions, whether it be their kids’ activities or the time they might normally spend commuting to and from the office, this has led them to rediscover the qualities that attracted them to each other in the first place.
On the other hand, there are matrimonial attorneys that feel divorce rates are poised for a spike after the pandemic ends. The incompatibility and stress that led to the breakup of their marriage in the first place are only being exacerbated now that they are forced to shelter in place together. Bloomberg reported an increase in the number of divorces in China in March of 2020 after couples emerged from weeks of strict lockdowns aimed to stop the spread of the virus.
What I have not seen, however, are stories that discuss the impact that death or disability due to COVID-19 may have on the retirement plans of couples that are already divorced or are contemplating divorce.
These are significant issues that, if ignored, can leave one or both parties in an untenable situation. For many couples, after the equity in their home, their retirement plan represents their second largest asset. For other couples, without question their retirement plan constitutes their largest asset by far.
But, as the following examples illustrate, failure to pay attention to the impact that death or disability due to COVID may have in such a situation can prove to be costly.
In the midst of the pandemic, as the number of people falling ill was rapidly rising, one former spouse for whom we had completed a Domestic Relations Order (DRO) contacted us. Her ex-husband had reached his retirement age, but continued to work. Unfortunately, he became gravely ill with COVID-19.
His ex-wife was 55 years old. The DRO named the ex-wife as the beneficiary of either a 100% pre-retirement death benefit or a joint and survivor annuity option. However, the Joint and Survivor option was only available to her if her ex-husband actually retired.
If her ex-husband died before officially submitting his retirement papers, she would have only been entitled to the pre-retirement death benefit. That benefit was equal to three times his salary, which would have amounted to a lump sum death benefit of $450,000.
If, however, he was able to submit his retirement papers and then died after qualifying for retirement, as his beneficiary, her post-retirement death benefit would have been a pension of $6,000 a month payable for the rest of her life.
We were hired by his former spouse to prepare an actuarial valuation to determine which of the two benefits was more valuable: the pre-retirement death benefit of $450,000 or the monthly pension of $6,000.
Given the age of the ex-wife, the annuity option converted into its actuarially equivalent lump sum had a present value of $1,478,783. That does not mean under certain circumstances such as if she were a different age, or ill, or in financial need that she might not have opted for the pre-retirement death benefit, as that would have been paid almost immediately as a lump sum upon her ex-husband’s death.
But given her age and the fact she was in good health the monthly annuity was the option that she would have chosen.
Sadly, in the end, it did not matter. The virus took her ex-husband’s life so quickly that he was never able to submit his retirement papers. In similar situations, unless the separation agreement is properly drafted, the death of the participant prior to or after retirement can result in the ex-spouse receiving nothing.