Retirement accounts in divorce actions usually include any number of types of accounts. The following are just a few.
AnnuitiesPensions
401(K) Plans
403(B) Plans
SEP Plans (Simplified Employee Pension Plans)
IRAs (Individual Retirement Accounts)
Both prior to and during the course of many marriages retirement accounts are formed and appreciate. When a divorce complaint is filed in family court any and all retirement accounts that were opened during the marriage or appreciated during the marriage come under the scrutiny of the family court as a possible marital asset.So how do you know whether your retirement account might be a marital asset?
These two examples should be helpful to understand a few basic concepts.
Scenario No. 1
Jack worked at P&H Electrical. Jack had a 401(K) plan that he invested in. Jack had $23,000 in his 401(k) when he married Jill. During their marriage Jack continued to contribute to his 401(K) until Jill filed for divorce in Rhode Island 5 years later. At the time of the filing of the divorce complaint Jack's 401(k) had reached $57,000.
Jack didn't want to surrender any of his 401(k) to Jill because she didn't contribute to it, however that didn't matter. During the marriage, marital monies from Jack's income were contributed to the 401(K) and therefore at least part of Jack's 401(k) became marital when he married Jill and then made contributions into that 401(k).
The $23,000 was created by Jack prior to the marriage, therefore it should be exempt from the marital estate as well as any appreciation associated with that $23,000.
However, every dollar contributed by Jack, Jack's employer (if they match funds) and all the appreciation on those monies until the conclusion of the divorce would be considered marital funds subject to division by the family court.
Let's assume the total of the account by the time of the divorce trial is $62,000. After subtracting the $23,000, $39,000 would normally be the marital portion subject to equitable distribution by the court. This would be divided either by agreement or by the presiding judge after a trial on the merits by a Qualified Domestic Relations Order.
A Qualified Domestic Relations Order is a relatively complex document drawn up by a qualified professional who is proficient with the intricacies of such orders and the various plans that exist. It is a very technical Order to draft and is usually referred by most domestic relations attorneys to a specialist lawyer who drafts these Orders on a regular basis.
Scenario No. 2
Tim and Charlotte are married for 17 years. Tim has been contributing to a pension provided by his company since their second year of marriage. Tim files for divorce. Charlotte files a counterclaim for divorce and wants half of the estimated value of Tim's Pension when it reaches distribution.
At trial it's determined that Tim is 15 years into his pension but that he is not vested until he reaches his 20 year anniversary. Charlotte's attorney argues that they were married for more than half of Tim's total vesting period and therefore she should get 50% of his pension payment when Tim does vest. Tim's attorney argues that Charlotte would then be getting the benefit arising out of the last five years of service without being married to him and therefore the request is outside of the power of the court.
The trial judge determined that divorce assets are to be valued as of the time of the entry of the final decree and since Tim would not vest before the final decree of divorce entered that Charlotte could not be entitled to half of the vested payment. The court ordered that the value of the contributions to the pension be determined and Charlotte was awarded half of the contributions.
The trial judge's ruling found that a vested payment in a pension cannot be divided if it doesn't exist. If a pension plan has not vested, the pension only consists of the contributions made to the plan and those contributions are the only thing that exist to be divided.