Matrimonial and Family Law Blog

Saturday, February 23, 2019

What Happens to my Retirement Accounts When I Get Divorced?

New York is an equitable distribution state for divorces. Judges are not required to split all marital assets fifty-fifty between the spouses. The property is to be divided equitably or fairly, which may or may not be an even split. A New York equitable distributions lawyer can help protect your interest in marital property by introducing evidence that supports fair property division, including dividing retirement accounts.

Are Retirement Accounts Considered Marital Property?

Retirement benefits that you earn during the marriage are considered marital property. Any funds earned before the marriage is separate property and typically not subject to being divided with a spouse. 
Retirement accounts that may be included in the division of marital property include:

  • Individual Retirement Accounts (IRAs)
  • 401(k) Accounts
  • Pension Plans
  • 403(b) Accounts
  • Profit Sharing Plans

The New York Court of Appeals established a formula for dividing retirement accounts during a divorce. The formula is named after the case in which the ruling established the formula, Majauskas v. Majauskas. 

What is the Majauskas Formula?

Most judges follow the Majauskas formula when dividing retirement accounts during a divorce. The formula calculates the non-owner spouse’s portion of the account by using a fraction based on the total number of months that contributions were made to the account before and after the marriage. The fraction is then multiplied by a percentage to determine how much money is owed to the non-owner spouse. The percentage is usually 50 percent, but judges may lower the percentage for short marriages.
The formula and the calculation may vary depending on whether the retirement account is a defined contribution plan (401k plan) or a defined benefit plan (pension plan). The parties may also negotiate a settlement instead of allowing the court to calculate the division of retirement accounts.

The Need for a QDRO When Dividing Retirement Accounts in a Divorce

The division of marital property, including retirement accounts, is governed by state law. However, retirement accounts are subject to strict federal laws such as ERISA.  If you withdraw funds from a retirement account before retirement age, you could incur significant penalties and tax liabilities.

 A Qualified Domestic Relations Order (QDRO) directs the plan administrations to distribute the funds in the account according to the divorce decree. With a QDRO, if the non-owner spouse rolls the money into a qualified retirement account, the spouse can avoid paying taxes on the distribution. The spouse that owns the account avoids a penalty for early withdrawal of funds.

However, a QDRO must contain very specific language to ensure the distribution from the retirement account will not incur penalties or create a tax liability. A New York divorce attorney experienced in property division cases involving retirement accounts will know how to draft a QDRO that meets all the requirements under ERISA and other tax laws.

Seek Experienced Legal Counsel from a New York Divorce Attorney

Dividing retirement accounts during a divorce can be stressful, especially for couples who are nearing retirement age. The retirement funds may be a significant portion of the funds they counted on to provide income after they are no longer working. If you have questions or concerns about dividing retirement accounts during a divorce, contact Gassman Baiamonte Gruner, P.C. to speak with a New York divorce lawyer today about the specific facts and circumstances in your case.

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