Dividing a Retirement Plan
When Experience Counts
How Do We Divide A Retirement Plan? The first thing you have to do is figure out what kind of retirement plan you or your spouse have.
There are several kinds of retirement benefits that a court can consider in a divorce:
Social Security. A court cannot divide Social Security. However, it can – and in the right divorce will – order one spouse to pay maintenance to the other from Social Security. This is a little technical; it depends on how long you have been married, among other things. Some information from the Social Security website is here. But call me!
Defined Benefit Plan. This is more commonly called a “pension”, for the most part. This is the right to get monthly payments, of a certain amount, for the rest of your life, after a certain age. We see pensions in Boeing employees; State employees; Military; and union workers. A court can divide the community portion (that was earned while you were married and/or living together) between the parties. They are becoming less and less common; but they are very valuable: they promise you a set monthly amount, once you retire, for the rest of your life. An example of a QDRO that divides a Boeing pension is here.
Defined Contribution Plan. This is a plan where the employer – or you – put aside a certain amount each month. This is usually a 401K; an IRA; a SEP-IRA; a Roth IRA. This is NOT a pension. Here, a court can also divide the community portion of the 401K. The amount a spouse contributed before the marriage, plus any increase in that amount from market changes, is separate property and normally a court will not divide that. If I am handling the divorce, I will frequently hire a CPA to calculate exactly how much that is.
Dividing The Plan. Dividing a retirement plan depends on what kind of plan it is.
Dividing an IRA is usually pretty simple. Call the administrator; they will have a form to fill out. Your spouse opens an account at the same bank. You get and send them a copy of the Decree where your spouse is awarded some portion of the IRA; they transfer the amount over to her account; and then it is hers to do with as she wishes. If she cashes it out, she pays the fines and penalties. Otherwise, it is a non-taxable event; as long as she leaves it in an IRA, there are no tax consequences.
BUT dividing a 401K is a different problem. That requires a “Qualified Domestic Relations Order”. (A “QDRO”.) I do those. Those are separate orders, that have to be drafted by the attorney and approved by the pension administrator. They are not hard to do; but they do require some extra work. A sample QDRO is here. Every QDRO is different, because every pension administrator has their own rules.
Dividing Washington State Retirement Plans. There are a LOT of different state retirement plans: LEOFF 1 and LEOFF II; PERS I and PERS II; etc. There are also a lot of municipal retirement plans as well. The State has its own Department Retirement Orders, that need to be signed by the court and approved by the State. The link to the State’s website is here; and a sample DRO is here. That, again, requires some additional work on my part, but it is well worth while.
If there are retirement plans involved - call me with questions. There is no substitute for talking to an experienced attorney!
Case Law And Citations:
Trial court must consider a party’s salary increase, received shortly after separation, in calculating community share of present value of monthly pension where there was no evidence that increase was not result of community efforts.
In re Marriage of Hurd, 69 Wn. App. 38, 848 P.2d 185, review denied, 122 Wn.2d 1020 (1993).
A party’s reduced probability of enjoying pension benefits due to poor health may be a factor in valuing a pension, using a life expectancy other than from a standard actuarial table. The evidence, however, must be more accurate than a standard actuarial table, and the best evidence would be particularized expert opinion testimony on the life expectancy of the particular pensioner.
In re Marriage of Pilant, 42 Wn. App. 173, 180, 709 P.2d 1241 (1985)
Pension benefits earned before marriage or after separation are separate property and are excluded in the valuation of the pension.
In re Marriage of Manry, 60 Wn. App. 146, 149, 803 P.2d 8 (1991);
In re Marriage of Donovan, 25 Wn. App. 691, 694, 612 P.2d 387 (1980)
The community share of a pension may include increased benefits attributable to salary increases following dissolution, but not increases due to additional years of service.
In re Marriage of Harris, 107 Wn. App. 597, 602, 27 P.3d 656 (2001);
In re Marriage of Chavez, 80 Wn. App. 432, 437-38, 909 P.2d 314, review denied, 129 Wn.2d 1016 (1996)
Pensions, when apportioned between the parties, should use the Bulicek formula.
In re Marriage of Rockwell, 141 Wn. App. 235, 251-54, 170 P.3d 572 (2007);
In re Marriage of Bulicek, 59 Wn. App. 630, 638-39, 800 P.2d 394 (1990).