“How Are Retirements Divided During A Divorce?”

Retirements that are earned during marriage are community property and must be divided by the court. This includes retirements that are earned partly during the marriage and partly before or after. There are different kind of retirements—pension plans, and investment plans such as 401K’s and IRAs. These are divided in different ways.

For a pension plan, the plan is divided according to what is called the time rule. This means that the spouse has a 50% interest in the plan based on the time of marriage. It is a formula that is used to determine the payout when the pension holder retires. An easy way to understand this is to assume that the pension amount will be 4,000 per month at the time of retirement and that the holder of the pension worked 20 years to earn the retirement. If the length of the marriage was 10 years, during which the holder of the retirement paid into the retirement, then the community property interest of the spouse is 25%, or $1,000.00. This will be paid out directly from the retirement at the time of retirement.
Stock plans are divided differently. A court order will divide the account as of the date of separation, creating two separate accounts, on in each spouse’s name. The same rules of the original plan will apply, such as when the money can be withdrawn, etc.

However, sometimes parties wish to make alternate arrangements. There are two additional ways to divide retirements. One is to have a forensic accountant determine the present day value of the pension. There is a formula based on life expectancy tables and the ages of the parties that will allow them to determine a cash-out amount. If one party is able to make this payment, you have a “buy out” arrangement.

The other way is by equalizing the retirement against other property. It is not uncommon to have the retirement valued, and then offset against another major asset, such as a house or a business. This can allow the parties to take the assets that mean the most to them.

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