Some basic knowledge about retirement plans should be obtained prior to attempting to negotiate your divorce or legal separation.
There are basically two types of retirement plans, true pensions (also known as ‘defined benefit’ plans……..those plans that actually define the monthly benefit to be paid to the plan participant upon retirement), and defined contribution plans (commonly known as a 401k, 403B, 457B and IRA). These defined contribution plans are more similar to bank accounts, and typically require a direct contribution from the participant’s earned income.
Pensions used to be quite prevalent in the old world of corporate America, get and keep the same job for 30 years, however, with the exception of civil service or the Long Island Rail Road, pensions are a rarity in the current economic climate.
Distinguished from ROTH IRA’s, all of the retirement plans listed above are tax deferred, meaning no tax is due until money is withdrawn to use. At the time any withdrawal is made, the money received is treated as earned income in the tax year you take it out. You are not required to withdraw any money from any of these accounts until you turn 72.
If any (or all) of these retirement plans were acquired during the term of the marriage, New York State law treats these retirement accounts as marital assets, and subject to equitable distribution.
It is important to remember that only the portion of any of these retirement plans that were actually earned during the time you are married is the part that is going to be shared as a result of a divorce. The way this is accomplished is by getting the judge of the Supreme Court to sign an Order we prepare called a QDRO, or Qualified Domestic Relations Order. No QDRO is necessary for an IRA.
A divorce judgment is needed to have the QDRO signed and the pension (or defined contribution plan) distributed. The spouse who has earned the retirement benefits is referred to as the ‘participant’, and the other spouse the ‘alternate payee’.
If a couple is getting legally separated (normally because health insurance continuation is an issue), these QDROS should be prepared and pre-approved by the retirement plan’s administrator, to be pre-approved and agreed to at the time the Separation Agreement is signed. This way, when the divorce is granted, (perhaps years in the future), there is nothing to renegotiate, and the terms agreed to now are honored then.
Our office will explain the formulas to you, should the division of a retirement account be an issue.
We will also explain how it is possible to trade all or a portion of any retirement plan(s) for other assets in the marriage, like the house, or other investments. Figuring this out requires some ‘out of the box’ strategizing; something our office is very experienced in creating. Creative solutions specifically tailored to you and your family, not a cookie-cutter solution that any attorney can furnish.
Typically, the old adage is true: you get what you pay for.