Some assets are easier to identify and value during a divorce than others. Employment and retirement benefits, however, can be more difficult because they may accumulate over many years, including periods before, during, and after a marriage.
When a benefit spans these different periods, determining how much is connected to the marriage may require a time-based calculation. One calculation that may be used is a coverture fraction.
Coverture fractions are most often used for defined benefit pensions, although similar calculations may apply to certain stock options, deferred compensation arrangements, and other employment benefits. In Connecticut, the resulting percentage does not on its own determine how the benefit will be divided.
📌 Learn more about Divorce Financial Planning for Women
What Is a Coverture Fraction in a Divorce?
A coverture fraction, sometimes called a time-rule formula, compares the period during which a benefit was earned during the marriage with the total period over which the benefit was earned.
For pensions, this usually means comparing the employee's months or years of credited service during the marriage with the employee's total credited service. The calculation focuses on the period when the marriage and plan participation overlapped, not the total length of the marriage.
How Is a Coverture Fraction Calculated?
A pension coverture fraction is generally calculated as:
Pension participation during the marriage ÷ Total pension participation = Percentage of the pension associated with the marriage
For example, suppose an employee participated in a pension plan for 30 years. The marriage lasted 18 years, but only 15 of those years overlapped with the employee’s participation in the plan.
The coverture fraction would be:
15 years of participation during the marriage ÷ 30 total years of participation = 50%
This means 50% of the pension is attributable to participation during the marriage. It does not mean the other spouse automatically receives 50% of the pension. The spouses or the court must still determine how that portion will be divided.
How Does Connecticut Treat Coverture Fractions in Divorce?
Connecticut follows what is commonly called an all-property approach to divorce. This means a court may consider property owned by either spouse, whether it was acquired before or during the marriage.
A coverture fraction can help show how much of a pension is connected to the employee’s participation in the plan during the marriage. However, the percentage does not necessarily determine exactly what can or cannot be divided.
When deciding how to divide property, the court may also consider factors such as:
- The length of the marriage
- Each spouse’s age and health
- Income and earning capacity
- Each spouse’s financial needs
- Each spouse’s contributions to acquiring, preserving, or increasing the value of the property
- Opportunities to acquire assets and income in the future
Because these factors vary from one divorce to another, two divorces with the same coverture fraction may not result in the same pension division.
📌 Learn more about What Happens to a Connecticut Teacher’s Pension in a Divorce?
How Can a Pension Be Divided in a Divorce?
After a pension has been evaluated, there are two common ways it may be divided: deferred distribution or a present value offset.
Deferred Distribution
With deferred distribution, the pension stays in the retirement plan. The other spouse receives an agreed-upon share when pension payments begin.
For many private employer plans, this is handled through a Qualified Domestic Relations Order, commonly called a QDRO. The order directs the plan to pay the other spouse’s share. Government and military retirement plans may require different types of orders.
If a coverture fraction is used, it may be included in the order. The agreement may also address when payments begin, cost-of-living adjustments, survivor benefits, and what happens if either spouse dies.
Present Value Offset
Another option is to estimate what the pension is worth today. The employee spouse keeps the pension, while the other spouse receives additional assets, such as home equity, investments, cash, or other retirement assets.
Estimating the value of future pension payments requires assumptions about retirement age, life expectancy, interest rates, and the terms of the plan. The assets being compared may also have different income features, risks, and tax consequences. As a result, assets with the same estimated value may not provide the same financial outcome.
Before choosing an approach, it is important to understand the dates used in the calculation, the share each spouse would receive, and how taxes, future benefit increases, and survivor benefits may be handled. Any proposed division must also follow the retirement plan’s rules.
A divorce attorney can explain the legal requirements and prepare or review the necessary documents. Depending on the pension and how it will be divided, a pension specialist or actuary may also be involved.
How Can Pension Division Affect Your Finances After Divorce?
A coverture fraction can help identify how much of a pension is associated with the years of the marriage, but it does not show the full financial effect of the division. The method used, the timing of payments, taxes, survivor benefits, and any assets exchanged for the pension can all affect each spouse’s finances after divorce.
If you are going through a divorce and have questions about how a pension or other retirement benefits may affect your financial plans, we’re here to help. Schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut, to discuss how the decisions made during divorce may affect your retirement and other financial priorities.
Have a quick question instead? Send us a note.
| Schedule a Complimentary Introductory Meeting |
Kelsey Conklin is a CERTIFIED FINANCIAL PLANNER® professional and Certified Divorce Financial Analyst® professional who helps individuals and families plan for their financial future. Based in Glastonbury and Wilton, CT, she also specializes in financial planning for women, guiding her clients through divorce, widowhood, career transitions, caregiving responsibilities, retirement planning, investing, and managing longevity risks. As a female financial advisor, Kelsey is passionate about financial empowerment for women and provides personalized financial strategies designed to help women take control of their wealth with clarity. Whether you’re navigating major life changes or planning for retirement, she is committed to providing guidance tailored to your goals. Schedule a complimentary Women and Wealth introductory meeting with Kelsey and start building a financial plan designed for you.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.