Military Pension
Guessing the value of a military pension is like pricing a house without knowing the zip code; the result can swing six figures depending on the formula you pick. California judges want a dollar figure on the settlement worksheet, but the Department of Defense will not give you a neat quarterly statement like a 401(k).
Instead we rely on three court tested valuation methods, each with its own strengths and traps. Picking the right one can mean the difference between an even split and leaving retirement money on the table.
Present Value Method: Lump Sum Today
- Multiply projected monthly retired pay by life expectancy, then discount to present dollars
- Use the current pay scale, not future promotions, to avoid speculation
- Apply a discount rate between 2.5 and 4 percent based on current treasury yields
- Offset with the value of other assets to achieve an equal division without monthly payments
This approach works best when the non military spouse wants cash up front to buy a house or start a business. We recently used a 3 percent discount rate to value a Navy O-5 pension at $840,000, allowing our client to keep the marital home in exchange for waiving monthly payments. T
he key is hiring an actuary who understands military pay tables and cost of living adjustments; civilian experts often lowball the figure by ignoring the COLA escalator.
Deferred Division Method: Share The Checks Later
Also called the “if, as, and when” approach, this method awards the former spouse a percentage of each retirement check once the service member actually retires. The formula is usually “marital years of service divided by total years of service times 50 percent.” Courts love it because there is no guesswork about future promotions or early separation. The downside is waiting; if the member stays on active duty for thirty years, the former spouse’s share shrinks proportionally.
Net Present Value With Survivor Benefit Adjustment
When the service member wants to buy out the spouse but keep SBP coverage for the children, we calculate the pension minus the cost of survivor premiums. The premium is 6.5 percent of retired pay, so we reduce the lump sum accordingly. This hybrid method gives the non military spouse cash today while preserving long term security for minors.
Whichever method you choose, we submit a draft calculation to DFAS for pre approval before the judge signs, eliminating costly do overs. And we provide you with a simple spreadsheet so you can test different retirement dates and see how the numbers move.
Curious which formula gives you the biggest piece? Bring your LES to our free strategy session and we will run all three valuations while you watch, so you walk out knowing exactly what your share is worth before you negotiate a penny.
