Retirement Assets In A Divorce

In a divorce, if you or your spouse have any type of retirement assets or retirement benefits, those retirement assets/benefits are subject to distribution between the divorcing spouses. To the extent that retirement assets/benefits accrued or were created during the marriage, then each spouse is entitled to the marital portion of those assets/benefits.

There are many two general types of retirement assets/benefits. They are:

Defined Benefit Pensions: The employer or sponsor promises a specified monthly retirement benefit that is determined by a formula which uses the employee’s years of service, employee’s age and employee’s earnings history. This is called a “defined” benefit plan, as the benefit formula is defined and known in advance. However, while you are employed, the exact dollar amount that you will receive in retirement may not be known. Many government and public agencies provide a defined benefit pension plan. Some unions also provide a defined benefit pension plan.

Defined Contribution Plan: In a defined contribution plan, the employer, employee or both will make contributions to an individual account. The accounts are typically invested in mutual funds, stocks or other securities. The only portion of the accounts that are guaranteed are the employer’s contributions. Your actual retirement benefit in a divorce will depend on the amount of investment earnings that the account earns. Examples of defined contribution plans include Individual Retirement Accounts (IRAs), 401(k) plans, 403(b) plans, and savings and thrift plans. Technically, a defined contribution plan is not a pension, instead it is a benefit that is available to you after you reach a certain age (typically 59½ years of age), and without incurring substantial early withdrawal penalties and income tax consequences. A 457 plan or deferred compensation plan is similar to a 401(k) plan, except that there is no early withdrawal penalty, although the amount that is withdrawn is subject to ordinary income taxation.

How much of my former spouse’s Defined Benefit Pension will I receive?

If your former spouse has a Defined Benefit Pension, then you are entitled to the marital portion of that pension. In New York, this is determined by a formula that was created in the Majauskas case (which is why it is sometimes called the “Majauskas formula”). The formula states that the numerator is determined by the number of months that the Employee Spouse was married AND participating in the pension plan up to the date that the divorce was started (called the Date of commencement or the “commencement date”). The denominator is determined by the total number of months that the Employee Spouse is in the plan when he or she retires.  To determine your marital portion, the result of this calculation is multiplied by the Employee Spouse’s actual benefit, at retirement, and you would receive 50% of this amount.

Another way of explaining this is as follows:  You are not entitled to any portion of the retirement benefits that the Employee Spouse accrued before you were married and you are not entitled to any portion of the retirement benefits that the Employee Spouse accrued after the divorce action was filed. You are entitled to 50% of the retirement benefits that accrued while you were married and before someone filed for divorce.

Unless the Employee Spouse is already retired, then the actual dollar amount that you will receive cannot be determined.  However, since it is a defined benefit plan, the pension administrator or other expert can make a calculation of the expected dollar amount of the benefit that you and the Employee Spouse will receive.

Once the Employee Spouse has retired, then the pension administrator or other expert should be able to determine the actual dollar amount that you will receive.

How much of my former spouse’s Defined Contribution Plan will I receive?

If your former spouse has a Defined Contribution Plan, then you are also entitled to the marital portion of that plan. However, because the plan is invested in an individual’s account, the value can be determined by the amount that is in the account at the time that the divorce was commenced.  You would be entitled to 50% of that amount.  If, after the divorce is commenced, your ex-spouse or his/her employer contributes more money into that account, you are not entitled to any portion of those amounts.  You are also not entitled to any amount of money that was in the account that was placed there before the marriage date.  However, it can be difficult to determine how much money was in a defined contribution plan before your marriage, as many times records are only kept for seven years.

You are also entitled to any gains (or losses) in your share of the account after the divorce is commenced.  At the start of your divorce, the money in a Defined Contribution Plan will not immediately be segregated into your separate account.  Instead, it most likely will not be placed in a separate account until several months after your divorce.  Therefore, although you will know how much money you are originally entitled to, the actual amount that is placed in your account will depend on the gains or losses that account encounters.

The Badanes Law Office and David Badanes can answer your questions concerning retirement assets or retirement benefits in a divorce.

If you need an attorney for your divorce or to help you in obtaining your retirement assets or retirement benefits, please call David Badanes and the Badanes Law Office at 631-239-1702, email at david@dbnylaw.com or visit our web site: www.dbnylaw.com.  The Badanes Law Office represents clients in Suffolk County, Nassau County, and New York City.  Our offices are located in Northport and in Garden City.  We can also meet clients at offices located in Brooklyn and Manhattan.

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