Understanding the Type of Retirement Plan to Be Divided in a Divorce

retirement assets

Dividing Divorce Assets

Understanding the Type of Retirement Plan to Be Divided in a Divorce
retirement assets

Misunderstanding the type of retirement plan to be divided in a divorce is one of the most common mistakes in divorce settlement agreements and even final judgments, since often times attorneys prepare the final judgment which the judge simply signs. It often erroneously states “retirement plan” without ever defining the type of plan(s) to be divided.

Retirement plans can be defined contribution plans, defined benefit plans or some type of hybrid. These plans are vastly different and have different implications when trying to divide them. In defined contribution plans, an employee and/or employer make contributions into an account maintained in the employee’s name. These plans have a known account balance at any given time, since the underlying account is nearly always invested in publicly traded securities. In a defined benefit plan, the employee accumulates credits towards their retirement based upon years  of service to an employer, and often based on compensation earned.

Typically, when a settlement agreement says the parties will “divide a retirement plan” it can be interpreted that the non-employee (spouse) is going to receive a lump sum amount. However, if the plan is a defined benefit plan (ie. traditional pension plan), they may not be receiving any money until the working party retires. Further, they may never receive a lump sum – but rather a monthly benefit payment.

Knowing the plan type and the benefit that can be divided (a lump sum now, a lump sum later or a stream of income) can substantially affect how you may choose to negotiate a resolution.

Tips:

* Include the plan type in your agreement if it is not part of the name of the plan.

* Describe in the agreement if the receiving party will get a lump sum now, a lump sum at a future date or payments over time and when those payments will begin and end.

EXAMPLE: The husband participates in the “ABC Company Pension Plan” which has a cash balance plan with a defined benefit component. If the parties desire to divide the cash balance equally and the defined benefit component based on the marital coverture, the language must be specific. In this case “divide the retirement plan equally” would not be an acceptable reference for the plan administrator to implement a QDRO.

5 surprising statistics on divorce in the U.S.

divorce stats

5 Suprising Divorce Statistics

divorce stats

Although the “half of all marriages end in divorce” claim has been debunked, it’s still a commonly cited statistic. But what are the real divorce stats? Check them out below. (Note that most of the data below come from government sources like the Centers for Disease Control and Prevention and the Bureau of the Census and may be a few years old and incomplete. Click on each study to read more.)

  1. Yes, we’re seeing fewer divorces overall—but fewer marriages, too

In the 10 years since 2002, the divorce rate per 1,000 people dropped from 3.9 to 3.4. Good news, right? Maybe, but at the same time, the marriage rate per 1,000 people dropped from 8 to 6.8. So it’s a bit hard to say. (CDC)

  1. The Northeast has some of the lowest divorce rates in the nation

As a region, the Midwest sees the fewest divorces; this is, perhaps, not too surprising considering the region’s reputation for traditional family values. Several Midwestern states have the lowest divorce rate per 1,000 people, including Illinois (2.6), Iowa (2.4), North Dakota (2.7), and Wisconsin (2.9). States in the Northeast, however, like New Jersey (2.9) and New York (2.9), receive honorable mentions for low regional divorce rates. (CDC/NCHS)

  1. Nevada is closing the gap on divorce rates

Due to its relaxed divorce laws, Nevada was known throughout much of the 20th century as the place to get a divorce done quickly and discreetly. It’s a community property state, meaning that bickering over who gets what is curtailed, offers no-fault divorce, and has a lax residency requirement that stipulates that one spouse reside in the state for just six weeks before filing. It’s unsurprising, then, that Nevada has had the highest divorce rate for a long time. However, although Nevada still takes the lead, its divorce rate is becoming more in line with that of other states. In 1990, Nevada’s divorce rate was 11.4 per 1,000, and the state with the next-highest rate was Oklahoma, with 7.7. In 2012, Nevada’s divorce rate had dropped to 5.5 per 1,000, and the state with the next-highest rate was Arkansas at 5.3. (All states for which there are data available in this time frame saw a drop in divorce rates.) (CDC/NCHS)

  1. A contested divorce can cost as much as a new Toyota Corolla, and that’s if you’re lucky

The government doesn’t keep tabs on this statistic, but Forbes claims a contested divorce will cost about $20,000 on average, and costs can range from $3,500 to beyond $100,000. These numbers include filing fees and lawyers’ fees, real estate costs, therapy, and more. They do not, however, include assets lost in a settlement, which can also be substantial. For a simple, uncontested divorce, some couples spend less than $500 in legal fees.

  1. Second marriages that end in divorce are likely to last just as long as first marriages that end in divorce

Both last, on average, around 8 years. (Census)

 

Source:  Avvo