One of the purposes of this blog is to bring certain issues to your attention that we see occurring in our family law practice on a regular basis. The issues may or may not be relevant to your case, but, do appear in many of the cases that we handle.This blog is about retirement accounts. Retirement accounts are normally one of the most valuable assets of a couple going through the dissolution of their marriage. They must be handled carefully in order to assure that each party obtains his or her half of the community interest in the other’s retirement accounts.
Certain retirement accounts, like a 401k plan, an IRA, or a defined contribution plan, are relatively easy to value, as the amount of money in each account as of date of the termination of the community, i.e. service of process of a Petition for Dissolution, is the value of the plan to be divided between the parties. This assumes the entire sum in the plan was accumulated during the marriage.
A more difficult type of plan, however, to value or divide, is what is referred to as a defined benefit plan. This is the typical Arizona State retirement plan for teachers and government employees. There are some major private employers that also have this type of plan. The issue that we see in most cases will be to divide the community portion of the monthly benefit to be received when the employee/spouse retires, between the parties, or whether to have an actuary appraise the plan for its current fair market value. If we have an appraisal we can award the plan to the employee/spouse, but, award the non-employee/spouse other assets totaling one half of the community interest in the plan. An appraisal of this type of plan, in my practice, is about $400.00 per plan, with the actuary that we use.
One common mistake that we see individuals making is to believe that the value of this type of plan is the value stated on an annual statement received by the employee/spouse, normally each year. Typically, this type of “value” is only a liquidation value and only normally includes what the employee/spouse contributed to the plan. It normally does not include what the employer has contributed to the plan. As a result, this is not the correct fair market value of the plan, and, in fact, is normally far, far less. We often times see the employee/spouse trying to convince the non employee/spouse that this is the value of the plan, which then should be awarded to the employee/spouse at the lower value.
There is also another issue with regard to this type of plan. That issue is when should benefits be received? Normally, each party receives his or her one half of the community portion of the monthly benefit when the employee spouse retires. It is possible, however, under some plans, for the non employee/spouse to begin receiving his or her community interest in the plan prior to the retirement of the employee/spouse, if the employee/spouse decides to delay retirement past the normal retirement date. Each case is different and you should consult an attorney and in all likelihood an attorney who specializes in preparing the specific order to actually divide the plan.
Watch for future blogs for additional items to watch out for regarding retirement plans.