Splitting Retirement Benefits when Divorcing Later in Life
Retirement benefits are usually considered during divorce procedures, but they are especially important when divorces occur later in life. When parties choose to dissolve a marriage after the age of 50, retirement plans can be drastically impacted. It is vitally important that you consider all benefits held by you and your spouse, so that a fair and equitable split can occur.
Itemizing the Benefits
The first step is itemizing your collective benefits. Create a summary of all employment-related benefits, including any 401K accounts and pensions. Your list should also contain any IRA accounts or CDs. Once a comprehensive list is created, you need to determine which of these benefits were accumulated during the marriage. If you and your spouse have been married for your entire working life, this determination is easy because it is likely that all of the benefits are marital. If you married later in life, it is possible that some retirement benefits were earned prior to the marriage, which may exclude them from a designation of marital property.
Depending on the amount and types of retirement benefits involved, the next step can prove challenging. You must value the benefits, which means that you need to figure out their monetary worth. The difficulty in this process is that some valuation involves future determinations. You must estimate at what age you will access your benefits and your anticipated tax bracket at the time. In addition, you must also determine which benefits can be accessed early and what penalties will apply.
One key component in determining and valuing assets and net worth is hiring a reputable forensic accountant. This will prove invaluable and assist in preparing for mediation and or trial, and it ensuring that your spouse is not committing fraud and is accurately listing and representing all of his/her finances.
Possible Methods of Division
When dividing retirement benefits, spouses can choose from various options.
- – Dollars vs. Percentages – As advised in a USA Today financial article, it can prove beneficial to divide 401K and IRA benefits by percentages instead of dollar amounts. Drastic changes in the market can result in an inequitable division of the property if they occur prior to the final division of benefits.
- – For example, spouses are splitting the wife’s 401K plan that is worth $300,000 at the time of negotiations. They agree that each spouse will get $150,000. Prior to the actual disbursement of funds, the account balance reduces to $200,000 due to changes in the market. The husband will receive the agreed upon $150,000 and the wife will be left with $50,000. By splitting the benefits 50/50, both parties would receive $100,000.
- – Valuation and Property Replacement – When dealing with a pension, spouses may opt to valuate the plan and award one spouse property that equals half of that valuation amount. This allows the spouse with the pension to maintain it, while giving the other spouse an equitable replacement.
- For example, spouses are considering the husband’s pension plan. A valuation is completed and a worth of $50,000 is determined. The spouses also own a home with $75,000 in equity, which they agree to sell. Instead of giving the wife half of the pension, the spouses decide that the wife will receive $62,500 from the sale of the house. The husband will keep the entire pension and receive $12,500 from the sale of the house.
Retirement determinations can prove challenging. Secure the assistance of a knowledgeable attorney to ensure an equitable distribution. Located in Fort Lauderdale, the attorneys of Vanessa L. Prieto, LLC serve Broward, Miami-Dade and Palm Beach Counties. Call us today at 954-800-2362 or contact us online to schedule a consultation.