The challenges of dividing a retirement plan in divorce

On Behalf of | Aug 5, 2019 | Property Division

Determining the division of complicated retirement assets is often a component of the divorce process. Achieving the best outcome will usually require an experienced attorney and will also sometimes require the employment of experts in other fields, such as accounting or asset valuation depending upon the complexity of the asset to be divided.  Additionally, the parties may need to obtain a qualified domestic relations order (QDRO) from the court to avoid incurring taxes and penalties resulting from early withdrawal.


The type of retirement plan matters

Connecticut courts look to divide marital property between divorcing spouses in an equitable – though not necessarily equal – manner. This division includes retirement benefits earned at any point during the marriage. How the court divides that account (or accounts) depends, in part, on the type of plan in question.

Defined contribution plans such as 401(k) retirement plans typically offer less complex division options than those that are available in defined benefit plans (commonly known as pension plans).  The valuation of 401(k) plans usually involve identification of a straightforward cash values (pretax and penalties for early withdrawals) as compared to pensions, which are comprised of promises to pay in the future, and may be valued and divided in many different ways.  Defined benefit plans, sometimes referenced as pensions, may pay annuity benefits to beneficiaries who participate in the plan. Plan participants sometimes have options as to forms of payment that may be divided (e.g. single life annuity, joint and survivor benefits with a life insurance benefit, split life annuity, term of years). In some cases, valuations of pensions plan benefits may involve present value determinations, and in other cases valuation disputes may be avoided by dividing benefits if, as, and when a plan participant receives benefits. Likewise, other deferred compensation plans include the potential for accruing stock, stock options, restricted stock units, etc., and the treatment and disposition of those assets might require financial forecasting and the application of complex valuation models.

Divorce is often a financially complex process, and retirement plans are quite commonly involved in high asset divorces. The valuation and division of these plans can range from straightforward to extremely complicated exercises and can affect other aspects of the asset division.  People are well served in choosing an experienced attorney to guide them through the divorce process. The attorneys at Parrino|Shattuck, PC are experienced in guiding the firm’s clients through negotiating, and litigating when appropriate, property divisions in divorces, including divisions of complex retirement assets.

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