Do Retirement Accounts Get Divided During a Divorce in Massachusetts?

Retirement accounts are considered a marital asset in a divorce and the general way they are treated is that whatever accrued during the marital coverture period is divided. What marital coverture means is how long the parties have been married. So, what would be divided is what accrued from the date of the marriage to the date of divorce. 

Let’s use the example that the parties are married 20 years and then the party continues working for 10 more years beyond the divorce date. The payment to the non-employee spouse would be approximately two-thirds of one-half. In that case, if the payment was $3,000, one spouse would get half of $2,000. The way pensions are divided is by means of a qualified domestic relations order. That is in order that is drafted and given to the court and the court approves it; then it’s given back to the plan administrator for the pension so that the plan administrator then has the authority to divide the check between the parties. That’s also true if its a non-pension payment like an IRA account or a 401(k) account. Those are “what-you-see-is-what-you-get accounts.” Whatever your balance is, it is. In that instance, if there was an amount that was clearly something that could be carved out as being prior to the marriage, we also make that argument that it was prior to the marriage which is generally it would get divided although the court doesn’t always carve out pre-marital IRA or 401(k) money although that’s generally what they do.

The other problem with dividing pension and retirement accounts and this is a fairly common issue is someone might have worked for an employer for a long time and they want to keep their pension and they want to keep their pension at all costs or for instance, they want their spouse to have the house and they want to give the spouse another asset instead, for example, the house.  The pension would then have to be valued so that could be compared to the house value.

The valuations are done by a specialist or an actuary and essentially what they do is they take the pension and they want to determine what present value of that pension is. How they do that is by taking the number of payments expected to be made in the pension from the date the person starts collecting the pension to the anticipated date of death and they assign the anticipated date of death by means of actuarial tables.

If it appears for instance given that person’s age at the time of divorce and given their life expectancy that they are going to, in 10 years, collect a pension for 20 years. What they do is they take the 20 years of payments, I’ll use the $3,000 example, 20 years times $3,000 a month and they reduce that to a present value. It might be two-thirds of the actual amount received because they now have to backdate it for the fact that you’re looking at assigning a value to that pension now and trading that against another asset. So, in this example, if you get a pension evaluation and it is worth $250,000 and the equity in the house is $250,000, the settlement could be that one person gets the house and the other person gets the pension.

Retirement funds (IRA’s and 401(k)s) aren’t always swapped dollar for dollar for another asset because if they are withdrew, there are taxes and penalties. The flip side of that argument is that house equity isn’t always cash either although you can get an equity line of credit typically but cash in a house is also subject to cost when it’s distributed such as broker’s fees and other normal customer selling costs, tax stamps and so forth.

This informational blog post was brought to you by Cynthia L. Hanley, an experienced Mansfield, Massachusetts Divorce Lawyer.