By: Mervyn T. Braude
As with all community property, retirement assets are subject to equitable division upon dissolution. Therefore, that portion of any and all retirement assets accumulated during the course of the marriage must be divided.
There are three primary forms of retirement assets – IRA (Individual Retirement Account), 401(k) and, pension assets. While the first of these assets can be divided by simply transferring all (or a portion) of the IRA account to an IRA in the name of the other party, this is not so for pension and 401(k) assets. Typically, when a transfer occurs from a pension or 401(k) account, a taxable event is created. However, upon dissolution, a properly drafted Qualified Domestic Relations Order (QDRO)will avoid any such taxable event.
QDROs are typically prepared by lawyers with a particular expertise. Invariably, the QDRO preparer will be jointly retained by the parties, and a stipulation and draft order dividing the assets (according to the ratio or time determined in the dissolution proceeding) and will provide same to the parties for their review and signature. Once the correct stipulation has being prepared and signed, it will be submitted to the Court together with a form of Order (prepared by the QDRO preparer). Once signed by the Court, the order becomes a formal order of the court and the document is then provided to the pension or 401(k) plan administrator who will divide the retirement assets in accordance with the Court’s order. The result of the division will be an appropriate and tax free division of the retirement asset(s).
How do I calculate my share of a retirement asset?
It is only the community portion of retirement assets which must be divided upon dissolution. The difficulty arises when a party has worked for the same employer (or participated in the same retirement plan) for a period prior to and/or after the date of the termination of the community. Therefore, in order to determine the community portion, we calculate the total number of months during which the participant has contributed to the retirement asset and then calculate how many of those months were during the parties’ marriage. We then use those numbers to determine the community component of the retirement assets. By way of example: Assuming Husband worked for an employer (which has a pension plan) for 10 years or 120 months and further, that the parties were married for 8 years or 96 months (all of which coincided with Husband working for the employer), we would then make the following calculation: 96/120 reveals that the community proportion of the retirement asset is 80% and that 20% is Husband’s separate property. Thus, Wife would receive 40% of the total retirement asset (one-half of the community component) while Husband would receive 60% (40% representing his one-half share of the community component, and 20% representing his separate component).
About the author: Mervyn Braude is a family law attorney at the Phoenix law firm of Jaburg Wilk. He is a certified family law specialist by the State Bar of Arizona. Mervyn is a 2010 Southwest Super Lawyer. Got a real estate law question for Mervyn? Contact him directly.