Retirement plans are marital assets subject to division to the extent they were earned during the marriage. State laws differ on how to determine exactly what “earned during marriage” means so be sure to check with a local expert.
In order to earn pension benefits a worker must be employed and participating in the plan.
In order to participate in a 401K plan the worker must make contributions to the plan by deferring wages from his or her regular paycheck.
Since both examples would require the participant to earn their benefit in one form or another, either time in the pension plan or contributions to the 401K, these earnings are considered community property or martial assets and will typically be divided 50/50 unless there are other extenuating circumstances, or the parties agree otherwise.
Be careful, though, to make sure you are dividing apples with apples as retirement plans are pre-tax money where as other assets may have already been taxed. The difference in value between $100,000 pre-tax and $100,000 after tax could be $20,000 or even $50,000.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.