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Your Rights to Retirement Assets

Nest with IRA, House, 401K, and Pension eggsYou’re considering divorce, or you’ve already begun the process, or have been served papers by your spouse. You realize that there will have to be a division of assets, but you’re not sure how retirement plans are factored in. Are they just split 50/50?

Pennsylvania is an equitable distribution state as opposed to a community property state. Community property division of assets is focused on a 50/50 split, but courts using the equitable distribution standard start with 50/50 but then weigh several other factors to arrive at a split that is more equitable for both parties.

Retirement plans are obviously subject to division between spouses, but retirement assets can be handled a bit differently. They can be split immediately, deferred until the holding spouse’s retirement, or even traded for other assets.

Our team of family law attorneys at Iwanyshyn & Associates can help you navigate the entire divorce process, including any division of retirement savings. We proudly serve clients throughout the counties of Allegheny, Butler, Beaver, Washington, Fayette, Westmoreland, and Armstrong, as well as the neighboring areas of Pennsylvania.

Equitable Distribution in Pennsylvania

When you divorce, the best way to ensure that one spouse or the other doesn’t feel cheated on the division of assets — as well as on the issues of parenting time and child and spousal support payments — is to work out the details between the two of you.

If the two spouses can resolve all issues between themselves, even if it requires the involvement of attorneys, they can then submit their plan to the court for approval. The court will then approve, modify, or disapprove based on the factors it uses when deciding those issues.

If your divorce indeed goes to court for resolution, the court will first have to inventory all marital assets to be distributed. Marital assets are anything acquired by either partner, no matter whose name it’s in, during the time of marriage. Non-marital property is anything held by either spouse prior to marriage or acquired through a gift or inheritance while married.

Non-marital property can become commingled in different ways. For instance, if the wife owns a house prior to the marriage and the husband then helps her pay for it or even maintains it, the home can become marital property.

Additionally, any appreciation in the value of a non-marital asset during the time of the marriage is considered marital property, even without the other spouse’s involvement. If a non-marital house goes from $500,000 to $675,000 in value, for instance, then $175,000 of it becomes marital property.

When it comes to retirement accounts, any assets accumulated from the date of marriage to the date of separation are considered marital property. The date of marriage is easy to determine, but the date of separation can be tricky. If one spouse moves out, that can be considered the date of separation. Even sleeping in separate bedrooms without sexual contact can qualify. If nothing else, the date when divorce papers are filed becomes the date of separation.

Determining Equitable Distribution

By law, the court resolving the division of assets in a divorce must consider several factors, including, among others:

  • Contributions to the marriage by each spouse, including if one was a homemaker

  • Economic circumstances of the two parties, employment prospects of each

  • The duration of the marriage

  • Any interruption of personal careers or time off for educational opportunities

  • The contribution of one spouse to the other spouse for career or educational opportunities

  • Whether either spouse was previously married

  • The value of non-marital assets owned by each spouse

How Retirement Accounts Are Divided

When it comes to retirement assets, a lot depends on what kind of retirement plan is subject to division. Basically, there are two types of retirement plans — defined benefit and defined contribution — and both need to be treated differently.

Defined benefit plans are generally sponsored by the employer and accrue over a period of years, after which the employee becomes eligible for a guaranteed monthly retirement payment. Examples of defined benefit plans include the State Employees’ Retirement System (SERS), the Public School Employees’ Retirement System (PSERS), and several other federal pension plans.

Say you work for a company that promises you 70% of your salary upon retirement after 20 years of continuous employment, but at the time of divorce, you’re only 10 years into the plan. If this is the case, it can be extremely difficult to determine the value of the asset, and the court will probably order a division of the monthly payment once the employee spouse retires. The division would be equal to 50% of 10 years of accumulated value, and thus 25% of the monthly payment. This is called deferred distribution.

A defined contribution plan — such as ESOPs, SEPs, Profit Sharing Plans, and 401(k)s — can be treated differently, as the financial company controlling the plan issues regular statements of how much money has been accumulated. Since the value of the assets is readily available, the portion accumulated during the marriage period can be divided and withdrawn or transferred into the other spouse’s IRA or retirement plan. If the money is just withdrawn without being sheltered, however, severe tax consequences can result.

Another option is called an immediate offset. In this scenario, the value of the retirement assets accumulated during the marriage can be offset by another asset in the marital estate. For instance, say the employee spouse saved $150,000 during the marriage. Instead of agreeing to a withdrawal or transfer, the spouse can offer half of the $150,000 ($75,000) in relinquished equity in the family home.

Military pensions can be divided under terms of the Uniform Services Former Spouse Protection Program, but the computation and process can be complicated.

The Role of QDROs

The division of retirement benefits requires the preparation of a Qualified Domestic Relations Order (or QDRO). The QDRO directs the retirement plan administrator to divide the affected assets or benefits to the divorcing spouse.

A problem can arise here with government-funded pensions. The government is not covered by the Employee Retirement Income Security Act (ERISA), so they are not required to honor QDROs. You’ll need the help of an experienced divorce attorney not only to prepare the QDRO but also to make sure it will be honored.

Our Team is Ready to Help

Divorce is a time of great emotional stress, and it’s not always easy to make reasoned decisions when it comes to the division of assets, and issues of custody, parenting time, or child and spousal support. On top of that, you have to consider the effect divorce might have on your retirement since your pension and retirement savings are subject to 50/50 division during the time of marriage.

Our team of family law attorneys at Iwanyshyn & Associates has 30 years of combined experience in helping couples through collaborative divorces. Under a collaborative divorce, each spouse hires an attorney, and the attorneys agree to work toward a settlement and keep the matter out of court. Once matters go to court, you can never be entirely sure what’s going to happen, so it’s better to resolve issues on your own whenever possible.

If you’re considering divorce or already in the process, and reside in the greater Pittsburgh area or the counties of Allegheny, Butler, Beaver, Washington, Fayette, Westmoreland, or Armstrong in Pennsylvania, contact us immediately. We take each case personally and stand ready to help you, whether it’s a collaborative divorce or one headed to court.