Retirement Benefits in a Divorce

The valuation of retirement benefits is an issue in many dissolutions. Retirement benefits are considered deferred compensation, and are thus treated as marital property to be valued and awarded by the court. It can be difficult to determine the value of these assets that are earned and gain value over a long period of time.

Different types of retirement plans include defined-benefit plans, which promise a specified monthly benefit at retirement, usually determined through a formula that considers factors such as salary and service; a defined contribution plan in which the employee or the employer both contribute to an individual account under the plan, such as a 401(k) plan, 403(b) plan, ESOPs, and profit-sharing plans; a simplified employee pension plan (SEP) by which employees make contributions to individual retirement accounts; a Money Purchase Pension Plan, which requires fixed annual contributions from the employer; and individual retirement accounts such as IRAs and Roth IRAs.

Some retirement benefits, such as IRAs, Roth IRAs and 401(k) plans, are easy to value because their value is the balance in those accounts at the time of the separation of the parties. An issue can arise where there has been significant appreciation of the account after the separation of the parties and there have been post separation contributions by the owner of the account.The post-separation contributions are treated as separate property and are usually relatively easy to determine. It can be more difficult to determine what the balance of the plan was at the time of the marriage, in a situation where there has been a long term marriage and an even longer term employment.

Defined benefit plans are more difficult to value.A common example is a pension plan, where the employee at retirement receives a specific benefit determined in advance by a pre-established formula.A common example is a benefit that is the sum of 2% of the average highest three year’s salary times the number of years of service. Valuation of these types of retirement benefits generally calls for the services of an actuary. That valuation can sometimes be avoided if the parties agree upon a division of the monthly benefits ultimately received on a basis which is proportionate to the amount of the benefit which was earned during the marriage compared to the amount of the benefit which was earned prior to the marriage or after the separation.

There can be other retirement benefits that call for special consideration, such as civil service retirement, military retirement, etc. Please feel free to contact our firm if you have issues with these or any form of retirement benefits.

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