What a pension is worth in divorce: present value, explained

A 401(k) has a balance. A pension has a promise — a monthly check that starts years from now and lasts a lifetime. Before that promise can be traded against a house or a savings account, someone has to put a price on it today. That price is the present value, three assumptions drive it, and moving any one of them can swing the answer by tens of thousands of dollars.

Why a pension needs a valuation at all

Defined-contribution plans — 401(k)s, 403(b)s, IRAs — are easy to price: the account balance is the value, and dividing a 401(k) is mostly a matter of choosing a date and drafting the order. A defined-benefit pension is a different animal. The plan doesn't hold an account in the participant's name; it promises a formula — typically some percentage of final salary multiplied by years of service — paid monthly from retirement until death.

That promise is marital property to the extent it was earned during the marriage, and settlement negotiations need it expressed as a dollar figure whenever one spouse wants to keep the whole pension and compensate the other with something else — home equity, brokerage assets, a larger share of the 401(k). You cannot trade a monthly check against a house without first converting the check stream into today's dollars. That conversion is the present-value calculation.

The three inputs that drive every valuation

Present value answers one question: what lump sum, invested today at a given interest rate, could exactly replace the future payments? Every pension valuation — whether it comes from a $5,000 actuary report or a free calculator — is built from the same three assumptions:

• The discount rate. The interest rate used to shrink future dollars into today's dollars. Higher rate, smaller present value — because a smaller lump sum could grow to cover the same checks. This single input causes most of the disagreement between experts, and it gets its own section below.
• How long the checks last. A single-life pension pays until the participant dies, so the valuation leans on mortality assumptions. Federal mortality data puts remaining life expectancy at age 65 at about 18.2 years for men and 20.7 for women — roughly 220 to 250 monthly checks — per the CDC's mortality report for 2023. Professional valuations use full actuarial tables rather than a single expectancy figure, weighting each future year by the probability of surviving to collect it.
• When the checks start. A pension that begins at 65 for a participant who is now 50 gets discounted for fifteen extra years before the first dollar arrives. Earliest-retirement provisions, subsidized early-retirement benefits, and cost-of-living adjustments all move this lever — and plans differ on every one of them.

The discount rate: one pension, three answers

Take a $2,000-a-month single-life pension starting at age 65, for a participant who is 50 today, and assume payments run for twenty years. The only thing changed across the three bars below is the discount rate:

At 4 percent the pension is worth about $181,000 today; at 5.5 percent, about $128,000; at 7 percent, about $92,000. Nothing about the benefit changed — only the assumed interest rate. A spouse keeping the pension wants a high discount rate (small value, small offset owed); a spouse being bought out wants a low one.

There is a federal reference point, though it binds plans rather than divorce courts. When a plan itself converts a pension to a lump sum, Internal Revenue Code section 417(e)(3) requires the result to be no less than the present value computed with the “applicable mortality table” and “applicable interest rate” — defined as “the adjusted first, second, and third segment rates” for the month before distribution. The IRS publishes these minimum present value segment rates monthly; for May 2026 they were 4.42, 5.47, and 6.31 percent for payments falling in the first five years, the next fifteen, and beyond twenty years respectively. Divorce experts often borrow these rates because they are published, current, and hard to accuse of bias — but nothing forces a court to use them.

The marital share: the coverture fraction

Whatever the whole pension is worth, only the portion earned during the marriage divides. The standard tool is the coverture fraction (also called the time rule): years of service credit earned during the marriage, divided by total years of service. The leading formulation comes from New York's highest court in Majauskas v. Majauskas, 61 N.Y.2d 481 (1984), and the state retirement system's own guidance for divorcing members walks through it: 18 years of service during the marriage over 30 total years is a 60 percent marital share, and half of that — 30 percent of each check — goes to the ex-spouse.

Two details deserve attention before the fraction gets locked into a settlement. First, the denominator is usually total service at retirement, which keeps shrinking the marital percentage as the participant keeps working — that is by design, since post-divorce service isn't marital. Second, the fraction can be applied either to the benefit as it stands at divorce or to the benefit at retirement (which folds in post-divorce raises); states split on the default, and the choice is a cousin of the valuation-date decision in 401(k) orders. The formula is also negotiable — courts and couples routinely substitute flat percentages or dollar amounts.

Offset now or share later — when you actually need the number

The present value exists to serve one strategy: the immediate offset, where the participant keeps the entire pension and the other spouse takes equivalent value from other assets. It settles everything now, requires no ongoing contact, and needs no plan involvement — but it hinges entirely on the valuation, and it hands the non-participant spouse assets today in exchange for giving up a stream that would have lasted a lifetime.

The alternative is the deferred distribution: a qualified domestic relations order awards the ex-spouse a share of each check when payments begin. No present value is needed at all — the coverture fraction rides along inside the order and both spouses share the actual benefit, whatever it turns out to be. The trade-offs cut the other way: the money arrives decades later, and the order has to handle survivor benefits explicitly, because an ex-spouse's share of a single-life pension dies with the participant unless the QDRO says otherwise.

Offsetting also repeats a trap covered in the 401(k) guide: pension checks will be taxed as ordinary income when paid, while home equity generally isn't. Trading a pre-tax stream against after-tax assets at face value quietly shortchanges whoever takes the pre-tax side — valuations are frequently adjusted for expected taxes, and whether and how to do that is itself a live dispute.

Why two experts price the same pension differently

Hand the same benefit statement to two competent professionals and the reports can land far apart without either being wrong. The usual sources of daylight:

• Rate philosophy. One expert discounts at the 417(e) segment rates, another at long-Treasury yields, a third at a corporate-bond rate. Each is defensible; each moves the number.
• Retirement-age assumption. Valuing to the plan's normal retirement age versus the earliest subsidized retirement date can change the answer materially — early-retirement subsidies are real value that a normal-age valuation ignores.
• Pre-retirement risk. Some reports discount for the chance the participant dies before payments begin (worth less); others assume survival to retirement (worth more), especially where a pre-retirement survivor benefit exists.
• COLAs. Public-sector pensions often carry cost-of-living adjustments. Including them raises the value substantially; omitting them is a common quiet error in the participant's favor.
• Tax adjustment. Whether the stream is valued pre-tax or after-tax, and at what assumed rate.

In negotiation, the practical move is to make every assumption explicit and trade them consciously — a report that discloses its discount rate, mortality table, and retirement age can be checked; a bare number cannot.

Getting a number: what it takes

Start with the participant's most recent pension benefit statement (the accrued monthly benefit at normal retirement age), the plan's summary plan description, and the service history. For a first-pass figure to anchor negotiations, our pension present value calculator runs the same discounted-annuity math as the example above and lets you test how the discount rate and payout period move the result. For a settlement of any size, a credentialed actuary or pension appraiser is money well spent — typically a few hundred dollars against a six-figure asset — and their report is what a court will actually credit. The Department of Labor's QDRO guidance covers what plans must disclose to a prospective alternate payee — including the information needed to value the benefit.

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