RETIREMENT ACCOUNTS
Your retirement funds and accounts often represent the largest category of assets in the marriage. Before you decide to give up retirement plan assets in exchange for the marital home, or to each simply retain your own accounts, you need to know exactly what you’re dealing with and exactly what you may be giving up.
To get an accurate estimate of a retirement plan’s worth, you should have the plan valued by an expert. You should find out what, if any, penalties and tax implications there will be if you divide and distribute the plan. Also keep in mind that different methods for dividing the plan may be available to you.
Once you have identified all of the retirement assets, it is a matter of determining their value. In most cases, the key is in understanding the different types of accounts:
Defined Contribution Plans are plans in which the person has their own account and there is a certain sum of money in an investment account. The balance of the account builds as money is added to the account and as the investment grows, it generates interest or dividends. These types of plans include 401(k) plans, profit-sharing plans, stock bonus plans, employee stock ownership plans (ESOP), and Individual Retirement Accounts (IRA).
Defined Benefit Plans are plans in which an employer promises to pay an employee a particular benefit when the employee reaches retirement age. Employers make contributions to the plan, and the contributions sometimes can be increased by the employee.
The marital portion of the plan is, in basic terms, the portion of the plan that was accumulated and earned during the period of the marriage.
Once you know the value of the plans, you can decide how to divide them. There are four options:
1. Immediate Offset. If you have other marital assets that can be used to balance the value of the retirement fund, the spouse not receiving the pension funds from the other asserts to equal or offset the value of the pensions.
2. Division of the Plans. You may wish to divide the value of the pensions now. For defined contribution plans, this is relatively easy, however, a QDRO (Qualified Domestic Relations Order) is required. This document, once approved by the court, instructs the plan administrator on how to divide the pension.
3. Deferred Distribution. You may decide to defer division of a Defined Benefit Plan until retirement in order to both determine what the actual amount of the pension will be, and to secure potential increases in the value of the pension as retirement age nears.
4. Reserved Distribution: Often, individuals ask the court to delay making a decision regarding the division of a pension. This request won’t often be granted in Massachusetts as property division issues are a one-time event that are usually not addressed or revisited post-divorce.
It is important that you incorporate provisions retarding the retirement funds into your Separation Agreement in case the QDROs are not drafted and approved by the time your decree is final. If your rights have not been protected in the Separation Agreement, and your pensioned spouse dies after your decree is final but before the QDRO has been approved, your rights maybe lost.
Once we understand your needs and goals relating to an uncontested divorce, we use our experience and skills to help you accomplish those goals – quickly and for a flat-fee. Our menu of services and fees helps you reduce cost, time, and stress. Most importantly, we’ll help you save your kids. Contact us to learn more about your options, or call (800) 910-DIVORCE.
If you need assistance with contested divorce, our sister-firm The Massachusetts Family Law Group handles these matters.