Besides real estate, retirement plans and pensions are often the largest assets in a marriage.
You don’t need to wait until your spouse retires to divide a retirement plan; you can request it at the time of the divorce. A special procedure is required which isn’t always fast, but often well worth it. Retirement plans can be very valuable!
There are a variety of factors to consider when dividing a retirement plan:
Retirement plans usually belong to both spouses
If a retirement plan was built up during the marriage, it’s considered a joint asset. Either part of it or all of it belongs to both spouses. It’s common for someone to earn part of a retirement plan during marriage, and part of it before or after the marriage. This would make part of the funds belong to one spouse and part of them belong to both. This is often called a “mixed asset.”
How much is one spouse entitled to? The rules that govern the division of retirement plans can be complicated, and depend on the type of benefit being divided. But the general rule is to divide the benefits earned during the marriage right down the middle.
The 2 types of retirement plans
The first step in dividing a retirement plan is to determine which type of accounts you’re dealing with. Typically, there are two types of retirement accounts: defined contribution plans and defined benefit plans.
Defined contribution plans, also referred to as savings plans (such as a 401(K)), are retirement accounts where the employee, the employer, or both, make contributions into the employee’s retirement account.
Defined benefit plans (such as a pension) are company retirement plans that are based on the employee’s salary history and years of service. These plans pay monthly benefits when the employee retires, and payments continue for the rest of the employee’s life.
Valuing the retirement plan
Once the type of plan has been identified, the next step is to determine its value.
Some plans are easier to divide and usually only require an accurate accounting of when money was added and withdrawn over the years. Other plans, however, can be difficult to value and require an expert to review them.
Splitting the retirement plan
A divorcing couple can also choose whether to divide a retirement plan now, and pay out in a lump sum, or reserve dividing the benefits until the plan matures and is available for payment, which can be more common with defined benefit plans and pensions.
We’re here to help.
Since retirement plan benefits are usually the most valuable asset to divide after real estate, it’s strongly advised that you seek the legal advice of an experienced lawyer. Having a skilled and knowledgeable attorney during this process will help you reach a fair distribution of your assets and can go a long way toward avoiding problems in the future. Use the form below to request a free consultation!