When it comes to major assets, obtaining the most favorable outcome requires that your attorney pays careful attention to each and every asset that is part of your case. Retirement assets are likely just one piece of your property that must be divided, but ensuring this asset is divided in the most advantageous way is an important consideration.
Retirement Accounts as Marital Assets
Assets that are acquired during a marriage are considered marital assets in New York. Additionally, the increase in value during marriage to assets owned prior to the marriage is also considered a marital asset. Marital assets are divided using a process called equitable distribution in which the assets are divided among the spouses in a way that is fair and equitable, but not necessarily divided completely equally. The court determines what percentage of the total assets each spouse is entitled to by considering a wide variety of factors and circumstances.
It is common for spouses to come into a marriage with existing retirement accounts, which then increase in value during the marriage. The value of the account before the marriage will generally be held to be separate property. The increase in the value of the account after the marriage is likely to be considered marital property. However, suppose both spouses have retirement accounts. In that case, the court will generally allow each to keep their own separate accounts and offset any differences in value in the settlement as a whole.
Calculating the Division of Retirement Assets
If retirement assets must be divided in the property distribution, there are two pathways available. First, the couple has the opportunity to work with their attorneys and come to an agreement about how the assets will be divided. If no settlement is forthcoming, it is up to the court to divide the retirement assets and the rest of the marital assets in the divorce.
When the court divides retirement assets as part of a New York divorce, they usually apply what is called the Majauskas Formula (named after a case of the same name, but note that the court has the discretion to apply another formula if the judge determines it is appropriate).
The formula is as follows:
- 50% multiplied by the number of years of service that were accrued during the marriage
- Divided by the total number of years of service at the time of retirement
- The net result is the percent of the value of a retirement account that is a marital asset.
Consider this example:
Spouse A worked for 30 years, contributing to a retirement account during those years. He was married to Spouse B for 15 years during that period of time. The account is worth $100,000 in total at the time of the divorce.
The formula is: 50% x 15 ÷ 25.
Based on the Majausakas Formula then, 25 percent of the total retirement fund is a marital asset, so $25,000 is a marital asset and can be distributed by the court. If the court determines distribution should be 50/50, Spouse B is entitled to $12,500 from that account.
Transfer of Retirement Assets
The amount awarded to the non-owner spouse in the divorce is transferred to a separate account in their own name. The divorce decree will specify the amount the non-owner spouse is entitled to. However, that decree on its own cannot create the transfer of funds.
A Qualified Domestic Relations Order (QDRO) is a separate order that is required to effect the transfer of retirement assets once the divorce has been finalized. Because every retirement account is managed differently, each company has its own requirements for what the QDRO must say to take effect in their system.
The QDRO details the amount the non-owner spouse is entitled to as well as details about survivorship benefits, disability pension rights, and pre-retirement death benefits. The retirement plan administrator must formally accept the QDRO before it can take effect. Since this document is so detailed and specialized, it is important that you work with an attorney who is skilled and experienced in creating them to exactly match the requirements of the plan in question. QDROs cannot be modified at a later date, so they must be done correctly.
Retirement Accounts and Spousal Support
It is important to note that when a spouse receives payments or withdrawals from a retirement account, this is considered income. Income impacts the amount of spousal support a non-moneyed spouse is entitled to. If the non-moneyed spouse receives a portion of a retirement account, it could decrease the amount of spousal support they are entitled to since their income is higher. This is an important consideration to discuss with your attorney as you evaluate your case as a whole.
Whether the retirement accounts at play in your divorce are large or small, they can significantly impact on your property distribution and future financial security. Be sure to choose a law firm that understands the importance of retirement assets and can ensure you receive a fair distribution in your divorce.