Trading a Pension for the House – Offsetting the Pension

More than twice as many men as woman have pension plans, and the benefits for men are generally much larger than those for woman who have very often been in and out of the workforce rearing children.

Women, therefore, find themselves in a position to trade a husband’s pension for other assets, such as the family house. When the spouses have sufficient assets to do this, the offset method, as it is called — trading the pension in exchange for, say, the house — may be more advantageous than a QDRO and a share of the pension pie.

The idea of trading a pension for a house seems attractive. First of all, the wife who is the nonparticipant may want to keep the house intact for the benefit of the children, but may not have the cash to buy out her husband. Second, the homemaking wife may feel that she is not entitled to share in the pension that her husband worked for all those years, particularly when the wife initiated the end of the marriage.

The present value or cash out makes it easy to use the pension during settlement negotiations. This routine awards the nonemployee spouse a lump sum settlement or a marital asset of equal value at the time of the divorce in return for the participant (working) spouse keeping his or her pension.

It sounds good: he keeps the pension; she gets the house.

Trading away a pension plan, however, requires careful thought of both short-term and long-term considerations. To make this work, the wife must know the present value of the pension, which requires an appraisal. For example, even if a pension is divided 50/50, the division may produce what are termed “disparate results” because the ages of the worker-husband and homemaker-wife are different. The present value of a defined benefit pension cannot be ascertained by the projected monthly benefit.

When both spouses have pensions, each has latitude to use them for the horse-trading that happens in divorce negotiations, but the house-for-a pension regime demands other considerations. A house is a barren asset that pays nothing until it is sold and creates expenses in ownership. By comparison, a traditional pension provides a lifetime income stream to the employee, based upon a combination of years of service and salary. A spouse who has not funded another retirement account, believing that he or she could rely on his or her spouse’s pension, thus faces a major concern and it is an even greater concern if that spouse has only been in the workforce for a short time because his or her Social Security benefit is usually substantially reduced.


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