Divorce and Retirement Plans

By Gerald A. Maggio, Esq.

divorce mediation orange county; California Divorce MediatorsA divorce itself can be a complex and tight affair. Add retirement plans to your already complex divorce and you have lots of things to deal with.  There is a term used in divorce cases known as deferred compensation. This is a word used to refer to 401K plans, pension plans and other assets of retirement. There are a number of ways that these plans can be made divisible regardless of them being one party or the other in a settlement agreement.

Their division usually depends on the nature and the value of the asset. Here is a list of a few common retirement asset types.

·         Saving Plans

These are plans such as the ESOPs, 401k plans, Thrift saving plans, IRAs etc.

·         Defined Contribution Plans

A define contribution plan is different to a savings plan. The value of this plan is determined with respect to the contributions that are made to this plan over the course. The money invested in such plans can be invested and can grow.

·         Defined Benefit Plans

A defined benefit plan is one plan that compensates the spouse once they have retired to the date when their life time ends. This is usually done through a monthly payment every month for the rest of their lives.

Dividing Saving Plans

Saving plans are considered cash plan and hence can be divided as part of a divorce between two spouses. They can be liquidated, but before the liquidation happens, it is important that the accounts custodian is given a certified copy that has the court order clearly written down on it. The IRA proceeds can either be directly paid to the spouses or they may be used to make two separate IRA accounts for both the spouses.  This could however result in a loss of the 30% for taxes as a penalty for early withdrawal.

Dividing Defined Contribution Plans

Before defined contribution plans can be divided because of a divorce between two spouses, they’ll need to be valued. Their valuation is carried out by multiplying the vesting percentage to the balance of the account. Generally when such plans are divided each spouse gets one half of the vested current value of the plan.

Diving Defined Benefit Plans

The workings of a defined benefits plan are different to the above mentioned retirement plans. In such plans the benefits of the participants will not be liquidated before the retirement age of the owner spouse is reached. Once the age is reached the participant spouse will receive her retirement plan in her name with respect to the marital interest they have in the participant’s plan. This plane given to the spouse will also have the same terms and conditions as the original retirement plan has.

To learn more about the divorce process in California and how mediation can help, please visit our page, “What is Divorce Mediation.”