Second to the marital real estate, retirement plans are generally largest asset marital couples seek to divide at the time of divorce. However, when dividing the retirement plans upon divorce, complex legal and financial issues are required to be addressed. With that being said, this article is written for educational purposes and it is generally advised to consult an attorney who is experienced in family law matters prior to making decision to divide retirement assets. The article below is written for educational purposes and will list the basics on how retirement assets are divided and the common mistakes people make when dividing the retirement plans at the event of divorce.
Not Knowing the Type of Retirement Plan to be Divided
Many people make the mistake of not knowing what piece of vital information could be potentially devastating in a divorce matter. For example, it is important to know what kind of retirement plan it is including whether it is benefit plan, defined contribution plan, cash balance plan, etc. Not knowing this vital piece of information could be is potentially devastating in a divorce matter because some plans must be divided with a court order, while others do not require a court order. On the other hand, it is important to keep in mind that there are some plans that cannot be divided.
Not Establishing a Clear Date of Division for Retirement Accounts
By not establishing a clear date of division for retirement accounts, you can ensure post-division litigation. It is important to determine whether to retirement plan is to be divided as of the date of separation or as of another date. This may be overlooked at first, but it is possible that the retirement account will grow in value after the date of separation. If the retirement account does grow, then the account holder would likely fight for the date of division to be the date after separation and the spouse receiving the benefits will want the date of the separation to be the date of division. The best way to avoid this area of contention is by establishing and agreeing on a clear date of division and make sure the date is memorialized in the Settlement Agreement.
Awarding a Flat Dollar Amount in a Recessive Market
If you have a 401(k) or any other retirement account, you have likely seen a decrease in the value of your retirement account over the past few years due to the financial market. After the divorce, the things do not change. If at the time of the divorce proceedings, recipient spouse is awarded a flat dollar amount, for example $70,000 of a $100,000 retirement account, the recipient spouse and the account holder may experience a rude awakening when at the time of the division, the account no longer holds that $100,000, but only holds $50,000. In the circumstances such as this, what should the recipient spouse do? Should he or she take the entire account or should he or she only be eligible to receive the 70% of the retirement account? It is essential for the settlement agreement or the final order to account for this contingency, otherwise the former spouse may be forced to resort to the post divorce litigation to resolve this issue.
Failure to Address the Surviving Spouses
It is quite possible to wonder what happens when the holder of the retirement account dies before the retirement plan is divided. It usually depends on the type of the plan that is to be divided. However, failing to address this issue in the Divorce Settlement Agreement or the Final Order can result in the recipient of the retirement benefits to not receive any payments if the holder of the account dies before the payments usually commence.
Hiding the Retirement Assets During Division
In order to safeguard their most prized holdings, often times, many individuals try to conceal the assets before the asset division. This can be done in several ways. For example, in order to conceal the assets during division, the assets might be transferred to a third party that is trusted such as a business partner or a child from a former marriage who can then place the substantial amount of assets in the offshore accounts. By doing this, the recipient spouse does not have any indication of the actual amount of assets actually held in the retirement account. However, such activity is not usually discovered during the discovery phase of the divorce proceeding and ultimately can serve to destroying the very holdings one had intended to protect.
Failure to Keep a Track of Joint Retirement Accounts During the Marriage
Often times, during the time of the marriage, the spouses fail to really keep track of their joint accounts. If the divorce is in the near future, the parties should take precautionary measures during the time of the marriage. The first step to doing this would be to contacting your credit card companies and other relevant creditors to close or freeze the joint accounts, if you and your spouse have a joint account. If the other spouse discovers that divorce is likely to happen, then they may go and charge the items that the other spouse likely does not want anything to do with or be responsible for. If one of the parties does end up closing an account, it might be in your best interest to ask for written documentation verifying that the account is actually closed. A lot can be on the line if the account is a joint account, thus it is important to make sure you have taken care of the joint account by closing it if the divorce becomes imminent.
Failure to Keep Track of Time
Timing of the divorce plays a pivotal role as well. Many people fail to keep track of their financial circumstances at the time of the marriage. It is important to remember that if the party has not earned enough during the time of the marriage, then it may be in the best interest to delay filing for the divorce.
Prior to talking with your spouse about a divorce, you should consult with an experienced divorce and family law attorney who can walk you through financial aspects of the divorce. The divorce attorneys at Coleman Legal Group, LLC have helped thousands of people divide and preserve their retirement assets in divorce. Call 770-609-1247 today to discuss your case with us.