GETTING DIVORCED? HERE IS A FREQUENT MISTAKE THAT IS MADE WHEN DIVIDING A RETIREMENT PLAN

Question: If one of the spouses in a divorce has a 401k Plan Account, and he or she had it at the Date of Marriage, how and when is it shared with the partner who has no retirement plan (the Alternate Payee)?

Answer:

1) Select the date when the account will be valued. This could be the date of the complaint; the date of the divorce; or the date that the participant partner receives the distribution.

2) Offset that value of the 401(k) Plan Account against some other asset in the marital estate valued as of the same date OR share the Account equally as of the date selected and stipulate to that sharing in a Qualified Domestic Relations Order (QDRO).

3) The selection of the date and the sharing method could result in a wide variety of results. For example:

  • Account at Date of Marriage: $50K
  • Account at Date of Complaint: $200,000
  • Account at Date of Distribution: $250K
  • Years in the Plan at Date of Complaint: 25
  • Years in the Plan at Date of Marriage: 15

Here are some of the possible sharing scenarios (amount payable to the Alternate Payee, either as an offset to 50% of other marital assets; a distribution from the Plan; or a Direct Rollover to an IRA) for the 401(k) Plan Account:

  • $100K as of the Date of Complaint
  • $125,000 as of the Date of Distribution
  • $40,000 as of the Date of Complaint (.5 times 10/25 times $200K)

Conclusion: The better that divorcing parties and their advisors are educated about their options of how to divide their retirement plan assets, the better their outcomes will be.

These and other retirement plan issues that are encountered by a divorcing couple and their advisors are explored in the recent publication “Dividing Retirement Plan Assets in a Divorce”, which is available as a paperback and e-book on Amazon.com.

Howard Phillips is a pension actuary, and has assisted companies and their employees with the design, installation, and administration of their tax-qualified retirement plans.

Over his 40 year career, Mr. Phillips was President of Consulting Actuaries Incorporated and President and Director of The American Society of Pension Professionals and Actuaries.

DIVIDING RETIREMENT PLAN ASSETS IN A DIVORCE is his latest book.

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