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Ensure Your Financial Future

Understanding retirement assets in a divorce


Ensure Your Financial Future

By Felicia Soleil, Divorce Mediator & Family Law Attorney, Family Law Resolutions

As a divorce lawyer and mediator, the most frequently disputed assets among clients are retirement accounts and pension benefits. Not only do parties usually not understand what they have, they don’t know how a divorce impacts those benefits.

I often hear, “I’ll just keep my retirement and we’ll split the other assets,” or “I’ll let her have the house if she doesn’t touch my pension.” This can be an expensive mistake for the spouse with little or no retirement accounts of their own.

The most common forms of retirement benefits are:

1. Deferred Compensation Account: These are employment-related accounts such as a 401(k), 403(b), an IRA or a Thrift Savings Plan (TSP) into which you contribute a percentage of your income each month and to which your employer may offer a matching contribution. If you leave your employer, you can take these accounts with you, including the company’s contributions.

2. Defined Benefit Account: These are pensions or annuities offered as part of an employment benefits package, usually with government jobs, very large companies, or unions. Some plans include contributions from the employee while others are fully funded by the employer. These plans do not pay out until you have vested in the plan and have met that plan’s eligibility criteria for retirement. 

Valuing a deferred compensation account is easy. The value is the account balance at the time of separation or divorce. If a spouse is awarded a share of the employee’s deferred compensation account, a separate court order (called a QDRO) will be used to transfer the former spouse’s interest into a separate account upon divorce.

On the other hand, most pension plans will only provide an estimate of the monthly pension benefit earned during the marriage. Because most parties do not have sufficient assets to buy out a former spouse’s interest in such a pension plan, the standard practice is to secure the former spouse’s interest using a percentage of the future monthly payments as part of the property settlement. This preserves the former spouse’s right to receive their share of the monthly payments upon the employee spouse retiring, even if retirement won’t occur for several years.

Both of these retirement benefits can be valuable marital assets, providing important sources of financial security for your future, particularly when coming out of a long-term marriage, and should be thoroughly evaluated with the help of a professional.

Felicia can be reached at 253.853.6940. All consultations are strictly confidential and currently conducted by appointment via Zoom or phone.

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