Clients often ask us how pension division happens for Individual Retirement Accounts, 401Ks, and other retirement plans during a divorce. After years of investing in these accounts, dividing them up can be a big concern even if the spouses are nowhere near retirement age.
There are several ways to proceed with a pension division of retirement plans during a divorce. Division is dependent upon a variety of factors: the type of retirement plan each person has and how the court or the divorcing couple want to deal with the taxes and penalties that may result, if any. Some retirement plans allow for a direct transfer of pension funds between the divorcing spouses. This direct transfer happens from one account to another, without going through the hands of the spouses, and occurs without taxes or penalty. Other retirement plansrequire that elaborate orders be entered into the final divorce decree that tell the pension plan administrators how to divide the funds between the couple. Finally, because pension plans can be very complicated in some cases, the division of certain retirement plans may turn out to be more trouble than they are worth: when this occurs, other assets are used to offset the money involved in the pension division.
No matter how the actual pension fund transfers are accomplished, though,pension division during divorce can and should be done as part of an equitable distribution scheme within your proceedings. Make sure these plans and funds are made a part of your disclosure to the court.
-Laurence J. Smith, Esq.