Division of Pensions, IRAs, and 401K

Property division and alimony are the most commonly discussed aspects of spreading assets and finances post-divorce, however one process seldom considered is the process of dividing the intangible assets of a retirement plan and benefits. Like bank accounts and other finances, these benefits are often shared between spouses. Likewise, when a divorce happens, these items must be divided between the spouses as well, as it is likely that they may be considered as part of the marital property.

Dividing Retirement Plans

When dividing retirement plans there are a few important things to remember. This can be a complex process. Sometimes, these benefits and plans must be reviewed for their origin to see if they are eligible for division or if they belong to one spouse specifically.

Determining What Plans May Be Divided

First and foremost, the benefit plan must be considered as a part of the marital property, otherwise there is no negotiating. There are two types of plans: benefit plans and contribution plans. Benefit plans include pensions and cash balance plans. Contribution plans include things like IRAs and 401k plans, that an employer will contribute to. Typically, most plans that are in effect before a person's marriage are thought of as "co-mingled," meaning that the plan itself is simultaneously marital property and non-marital property. The marital aspect will typically only include any growth the plan went through during the marriage. A plan created during the marriage will be considered marital property, which will make it subject to be divided between the two parties, unless contributions were made after the two spouses separated. Finally, any plans created and contributed to after the spouses have separated will normally be considered non-marital property.

When it comes time to actually divide the plans between the spouses, the courts will make use of the standard of "equitable distribution," meaning that the plans will be divided among the spouses according to what the court rules as "fair." The court also has separate methods for how pensions are divided versus how contribution plans are divided. Typically pension plans can be divided through a deferred distribution, which essentially separates the plan into two separate plans for each spouse according to the court's ruling. In an immediate offset, the court will consider the value of the plan and divide other assets to offset the value of the plan. For contribution plans, a portion of the retirement account will either be rolled over into another spouse's own plan, or the entirety of the account will be "cashed out" or liquidated with the total amount being divided between the two spouses.

At times, the court may order a Qualified Domestic Relations Order (QDRO) which allows the finance companies of the retirement plans to divide the benefits. These orders are very complex and are not simple to either obtain or enforce, so it is a rare solution to the issue of dividing retirement plans.

If you or a loved one is involved in matters of Family Law, contact Joseph D. Lento today.

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