Retirement accounts such as a 401(k), a pension or IRA — although owned by only one of the spouses — are assets subject to distribution by the Court.  

Specific attention must be given when dealing with retirement account distribution:

• ·         Marital vs. separate property — Marital property is subject to equitable distribution. This includes the portion of the retirement account that accrued during the marriage, i.e. from the date of the marriage to either the date the divorce commenced or the date of distribution by the plan administrator of the retirement asset.  Separate property is the portion that you contributed prior to the marriage, and this portion must be considered by the court to distribute the retirement accounts equitably.  Generally, the courts in this area divide the accounts equally taking into account the separate property contribution.  You need a skilled attorney to present to the court that the growth of the value of separate property should be segregated, as the value of the various holdings acquired prior to the marriage may have increased exponentially. But the future contributions that were added to this account do not share the same value due to the value of stocks at the time they were purchased and or made part of your retirement portfolio.  This growth should remain separate and the remaining asset to be divided equally is that which was solely acquired during the marriage.  An inexperienced attorney might not recognize the difference and thus inadvertently allow the increase of the separate property to be included in the distribution.
• ·         Valuation of retirement accounts — For defined contribution plans, such as 401(k)s or IRAs, the value can be the account’s balance on a specific date, such as the filing date of the divorce action or a mutually agreed-upon date. For defined benefit plans, such as pensions, the value is variable. A professional analysis may be needed to account for the present value of future benefits, considering such factors as the length of employment, anticipated retirement age, and potential future earnings.
• ·         Tax implications — Certain types of retirement accounts are tax-deferred, such as 401(k)s and IRAs. Taxes are not due until funds are withdrawn. Dividing these accounts in a divorce can create tax liabilities and trigger early withdrawal penalties. However, the court may issue a Qualified Domestic Relations Order (QDRO), authorizing the retirement plan administrator to divide the funds according to instructions. This makes the transfer tax-free.
• ·         Vested vs. unvested benefits — In the case of defined benefit plans like pensions, the question of vesting comes into play. Vested benefits are those the employee is entitled to receive even if he or she leaves the employer. Unvested benefits are contingent upon future employment with the company. New York courts consider both types of benefits as marital property to the extent accrued during marriage, but unvested benefits require a more complex analysis of future value.
• ·         Retirement age and life expectancy — The court may adjust the division of retirement accounts so that both parties get a fair share based on the likely duration of retirement. This does not typically occur.
• ·         Economic circumstances — A spouse who has fewer assets and/or limited earning potential may be awarded a larger share of a retirement account.  This is not a typical situation for most divorces.

An attorney experienced in dividing complex assets during divorce can take steps to make sure retirement plans are divided fairly taking into account tax consequences and various other factors. This includes working with professional valuators (i.e. experts) and or financial planners who can accurately forecast future value of pensions and other defined benefit accounts.

At Bombardo Law Office, P.C. in Syracuse, my firm assists Central New York clients with equitable distribution matters and other aspects of divorce. To schedule a free legal consultation, call 315-800-4002 or contact me online.