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Dividing Retirement Plan Assets in a Divorce
The first or second largest asset in a marital estate is one or both spouses' retirement plans. Therefore, a mistake made in dividing these assets in a divorce could be very costly for one of the spouses.
A Poorly Worded PSA
The Property Settlement Agreement (PSA) sets forth the agreement between the parties with regard to each of the assets in the marital estate. If the PSA provision in connection with retirement plan benefits/accounts is not specific, the implementation of that provision may not result in what was meant by the provision. For example, if the provision states that the non-retirement plan participant spouse (known as the Alternate Payee or AP) gets 50% of the participant's benefit/account, the interpretation could be:
- 50% of the benefit/account accrued as of the date of the complaint.
- 50% of the benefit/account in place when the participant spouse is paid the benefit/account.
- 50% of the benefit/account that accrued during the marriage, knowing that a portion of the benefit/account came with the participant spouse into the marriage.
Each of these interpretations can produce vastly different results. For example:
- Account at Date of Marriage (D of M): $50,000
- Account at Date of Complaint (D of C): $200,000
- Account at Date of Distribution: $250,000
- Years in Plan at D of C: 25
- Years in Plan at D of M: 15
Based on these assumptions, the share to the AP is:
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