Matrimonial and Family Law Blog

Monday, June 24, 2019

Dividing Pension Plans, IRAs and Investments During Your Divorce

Retirement accounts, including accounts owned before a couple was married, can be subject to equitable division in a New York divorce. Division of pension plans, investments, and IRAs can be complicated and vigorously litigated. To ensure that your legal rights and best interests are protected, it is wise to consult a New York equitable distribution lawyer before you agree to a division of any retirement accounts.

Dividing Retirement Accounts and Benefits During a Divorce

Spouses divide retirement, savings, and investments earned during the marriage during a divorce. Assets subject to property division include, but are not limited to:

  • Pension Plans
  • Individual Retirement Accounts (IRAs)
  • Investment Portfolios
  • 401(k) Accounts
  • 403(b) Accounts

Because retirement and investment accounts have different rules related to penalties and taxes related to early distributions, parties must consider these rules when dividing pensions, investments, and IRAs during a divorce.

What is a Qualified Domestic Relations Order (QDRO)?

A QDRO instructs the plan administrator of a pension or retirement plan to distribute a portion of the funds in the plan to the non-owner spouse. QDROs must contain very specific language to comply with ERISA and other tax laws to avoid creating penalties and taxes on the distribution. If the non-owner spouse places the funds in a qualified retirement account, the non-owner spouse avoids paying taxes on the distribution. The spouse who owns the account also avoids an early withdrawal penalty.

The Majauskas Formula?

Most family court judges in New York use the formula established in the case of Majauskas v. Majauskas when dividing retirement benefits and investments during a divorce. The formula is based on the number of months the party contributed to the account before and after the marriage and a multiplier chosen by the judge. Judges typically use 50 percent as the multiplier, but a judge may lower the percentage in cases involving marriages of shorter terms. Another factor that can impact the formula used to divide the asset is whether the asset is a defined benefit plan (i.e. pension plan) or a defined contribution plan (i.e. retirement account).

You May Reach a Settlement with Your Spouse

In some cases, spouses negotiate the division of retirement benefits and investment accounts based on other factors. For instance, a spouse may abandon an interest in the other spouse’s retirement account for possession of the marital home. Before agreeing to a settlement related to pensions, investments, and retirement accounts, both parties should consult separate legal counsel to ensure the settlement is fair and equitable. Once the court approves a settlement, the settlement can only be amended by a party under very limited situations, such as in the case of fraud or duress.

Contact a New York Family Law Attorney for More Information

If you are responding to a petition for divorce or you are contemplating a divorce action, a New York family law attorney can answer questions regarding divorce laws in New York, property division, spousal support, and issues related to children. Because consultations are confidential, you can speak openly about your concerns to receive experienced advice from a skilled legal advocate. Contact us today to schedule a confidential consultation.

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