Divorce and Public Pensions

The news has not been good lately for U.S public pensions. Long term returns for U.S public

pension on business document folder

pensions are expected to drop to the lowest levels ever recorded, as cities across the nation are faced with massive pension deficits. There is a real possibility that retirees won’t be paid what they thought, as government entities see their budgets drown in pension obligations, necessitating deep and unpopular cuts elsewhere.

In fact, according to a recent Wall Street Journal article the “two pension bellwethers reported their worst results since the 2008-09 financial crisis; as both the California Public Employees’ Retirement System and California State Teachers’ Retirement System dropped their 20-year returns below 7.5% investment targets, to 7.03% and 7.1%, respectively.”

Here in Chicago, the public pension situation is just as bleak. Chicago is currently facing a $20 billion dollar pension funding hole, with no recovery in sight and a bickering Springfield unable to come up with any viable solutions. Further, as the New York Times noted recently, “Illinois has one of the most explicit constitutional pension guarantees of any state.”  Finding that pension cuts are unconstitutional, the Illinois State Supreme Court recently interpreted the pension clause in a way that protects benefits that current public workers have not yet earned, as well as cost-of-living adjustments for retirees. Not only has this made a dire situation worse, but it raises the possibility that Chicago and Chicago’s schools must all simultaneously find a way to keep running pension systems that are already unsustainable.

So, why is this part of a Family Law blog? Because, if you are negotiating a divorce with the intent to receive a percentage of your spouse’s public pension, it is important to be advised of the true value of the benefit during negotiations and going forward so that you can structure a settlement or take a position that is in your long term best interest. Unfortunately, depending on your spouse’s age, if your spouse is due money in the future on a monthly basis, there is a very real possibility that neither of you will see all of it.  Moreover, if you are the participant in the public pension and negotiate a percentage of your pension away without expert advice, you may be giving up more retirement then you anticipated.

Given all that is going on in the news with respect to pension funds, when the division of these benefits is part of your divorce, there is even more of a reason to surround yourself with top advisors who can help you make decisions that will benefit you both now and in the future.

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Anne Prenner Schmidt

About Anne Prenner Schmidt

Anne Prenner Schmidt uses her acute business acumen to guide individuals through the complex division of retirement plans regarding family law matters. Prior to joining Schiller DuCanto & Fleck in 2015, Anne focused her practice on compliance of employee benefit plans and executive compensation arrangements. She frequently advised clients on Internal Revenue Code, ERISA, HIPAA, COBRA, the Affordable Care Act and other federal statutes. Anne understands the importance of retirement plans in association with divorce and helps clients navigate the multifaceted issues involved.

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