In a divorce case, retirement assets are subject to equitable division based upon enumerated statutory factors. Equitable distribution does not always mean equal division. For example, certain factors require the Court to consider current incomes, future earning capacities, and other financial circumstances. Often, the lower-earning spouse receives a majority of the marital assets, including retirement accounts and pensions.
Marital assets comprise property acquired during the marriage, absent certain exceptions. The growth of a non-marital asset remains non-marital property. Often, marital property is commingled or mixed, meaning it has both marital and non-marital components. This non-marital component not only includes the date-of-marriage balance on the retirement account but also any passive gains that can be proven to have been generated from the pre-marital balance. Establishing this passive gain often requires the assistance of a divorce financial expert or accountant.
Retirement assets with ascertainable balances, such as 401(k) plans, IRAs, and other defined contribution accounts, are often netted together and subjected to one percentage division. By way of illustration, if a husband has $150,000 in his 401(k) and a wife has $50,000 in her 401(k), and the percentage split is 50/50, the husband will owe the wife $50,000 via a Qualified Domestic Relations Order (QDRO) to effectuate the division of retirement funds. The division of such retirement accounts is also subject to market gains and losses.
Pensions, which often do not have ascertainable present values because they are based in part on future events such as future compensation and years of service, are divided pursuant to a coverture fraction referred to as the Cooper Formula with a 50% multiplier. The Cooper Formula takes the number of years worked toward the pension during the marriage as the numerator and uses the total number of years worked toward the pension as the denominator. That fraction is then subjected to a 50% multiplier, which is the award given to the non-employee spouse. For example:
10 years worked during the marriage x 50% = award to non-employee spouse
20 years total worked
Thus, in the illustration above, if the total pension benefit upon reaching pay status was $4,000 per month, the non-employee spouse would receive $1,000 per month, with the employee spouse retaining $3,000.
To learn more about this topic or for personalized guidance, contact attorney Patrick Boyer, who focuses on family law matters including divorce, equitable distribution, and retirement asset division. Patrick provides clients with strategic advice and compassionate support during challenging transitions. Call 302-654-4454 or visit macelree.com/contact-us.
