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Valuation of Retirement Assets in a Divorce Proceeding
Very few people realize at the outset of a divorce proceeding just how complex the process can be when marital property includes retirement accounts. When couples get divorced, retirement benefits commonly form a substantial part of the marital property and often can be among the highest-valued assets that a couple owns.Dividing retirement accounts, such as pensions, 401ks, and IRAs, can be a highly complex and convoluted process that requires the assistance of financial professionals—investment analysts, certified public accountants (CPAs), even actuaries. In order to divide these assets, a court must determine the value of the property accumulated during the marriage.
Valuation Methods
A court has the authority to transfer ownership interest in a retirement asset from one spouse to the other by entering a Qualified Domestic Relations Order. However, instead of transferring ownership, the court can provide the non-owning spouse with a monetary award in order to reach an equitable distribution of the assets. In Maryland, a court commonly uses an “if, as and when received” method of evaluating retirement assets; this frees the court from having to determine the value of a pension or 401k, because the true value is typically hard to discern at the time of divorce. The “if, as and when received” method allows the court to state a formula that sets a percentage of the asset to be paid to the non-owner spouse from future retirement payments received by the owner spouse; that percentage is then multiplied by a fraction, with the numerator comprising the number of months and years of employment during the marriage, and the denominator representing the total number of months and years of employment at the time of retirement.
Either party to the divorce can object to the use of the “if, as and when received” method; if the objection is timely, the court can resort to other approaches that are far more complicated and require the use of financial professionals, such as actuaries, CPAs, and others, to assess the value of a couple’s retirement benefits. Your family law attorney will work with you to recruit the necessary professionals to aid the court in reaching an equitable settlement between you and your soon-to-be ex-spouse.
Tax Implications
With retirement asset distribution, there are tax implications. For example, the property division of a Roth IRA might be calculated differently because it involves after-tax contributions, where a traditional IRA involves pre-tax contributions. If the valuation fails to consider the variances in the types of accounts held by the couple, the consequences could be severe. Bringing in the right professionals can help avoid costly mistakes.
If you are contemplating a divorce and are anticipating the need for additional professional help due to the types of assets you own, consult with an experienced family law attorney who can help you navigate the complexities of marital property valuation. Contact Howard County, MD, attorney Fred L. Coover, Esq., of Coover Law Firm, LLC, at 410-995-1100.
Disclaimer: The information in this blog post is provided for general educational & informational purposes only. It is not intended to convey legal advice or serve as a substitute for legal counsel on any subject matter.
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