When it comes to equitably dividing the assets that have been gathered during the course of a marriage in a divorce –retirement assets from pensions to IRAs to Annuities are important ones. Though many couples are busy fretting about who’s going to get the house or how custody agreements are going to be determined – there’s also something to be said for the importance of properly splitting retirement accounts and plans. After all, depending on the income of either spouse and the age of those spouses when the divorce takes place, retirement savings can frequently be one of the most valuable assets that any person owns. As such, we regard them as a very important matter to consider when figuring out which assets should go where for the best interests of both parties.

Unfortunately, the issue with retirement savings is that they have their own unique intricacies. These packages of money are subject to various complicated factors, such as tax implications, and this can mean that people struggle to handle them appropriately when figuring out how to divide assets. As a family lawyer, I’m left to do what I can to guide my clients carefully when they’re making decisions about financial plans and the potential options that might be available to them during the divorce.

Do You Have to Share Your Retirement Savings?

This is a question that many people have when they approach me with matters regarding the distribution of assets during a divorce.  The short answer is probably yes to the extent that the assets were earned during the marriage.  Portions of retirement assets which were earned before the marriage or after the end date of the marital estate (often the filing date of the divorce), are usually separate property and not shared on the other hand.  People often wonder whether they can avoid sharing their savings with their soon to be ex-spouse in some way. However, most of the time, if you are going through a divorce or legal separation and your spouse or you have some money sitting in retirement savings accounts, then you will be required to share these assets amongst yourselves in an equitable fashion – either through negotiation with collaborative lawyers, an agreement made in mediation, settlement negotiations or through litigation in which a decision will be made for you by the courts of New York if your case is one of the few that does not settle before the ultimate trial. In certain cases, the assets that have built up within a retirement savings account may be awarded to one single party – but this only takes place when specific circumstances are in play.

No matter the underlying circumstances, proper handling is required to ensure that the right party is held responsible for paying any applicable taxes and that the tax deferred status, applicable, is maintained.  Your divorce lawyer should have a good grasp about negotiating the division of retirement assets.  There can be a lot of intricacies such as pre and post retirement death benefits, shared interest and separate interests to name a few of them.   Divorce is one of the qualifying events that may allow assets to be transferred from one qualifying account into another without triggering income taxes if it is done correctly.  In most cases, the type of retirement plan that is in question (such a qualified plan or IRA) will determine the rules that apply.

Dividing Qualified Plans

The division of qualified pension plans comes down to something called a “Qualified Domestic Relations Order”, commonly called, “QDRO”.  A decree that is made under domestic relations law relating to the provision of things like alimony payments, marital property rights, and child support provisions is called a domestic relations order. In regards to retirement savings, the order in question will be a qualified domestic relation order, or QDRO, which recognizes the right of an individual called an “alternate payee’s” to receive some portion of, or all of the benefits that are payable under a retirement plan.

QDROs resemble kinds of financial transfers that take place during a divorce, and they are often regarded to be tax-free transactions so long as they are correctly worded and executed. The spouse receiving the retirement money can choose either to roll the cash into their own qualified plan, or into a traditional IRA.  Different formulas such as the “Majauskas” formula or coverture formula are used to divide retirement assets in New York divorces.   The Majauskas formula is named from a precedent setting divorce case of Majauskas v. Majauskas which I explain a little more below.

Who Can Receive a QDRO?

Importantly, it’s worth knowing that a domestic relations order can only be recognized as a QDRO if the New York court agrees with the alternate payee’s right to receive the money from the other spouse. This means that for a QDRO, alternate payees can never be anyone other than a child, spouse, or other dependent of a participant.

In many cases, spouses feel comforted by a QDRO because they offer a sense of guarantee and protection that typical marital settlements don’t provide. These orders allow for funds in a retirement plan to be withdrawn and separated without any penalty, and then deposited into the payee spouse’s retirement plan without concern.

How is a QDRO made?

Typically the requirement of the issuance of a QDRO is part of the ultimate divorce settlement and/or judgment of divorce.  QDROs are frequently drafted by companies that specialize in the preparation of QDROs.  Your divorce or family lawyer, however will be responsible for reviewing the drafted QDROs and causing the Supreme Court in New York to sign off on the QDRO.  Usually QDROs are issued subsequent to the Judgment of Divorce, post judgment, however that is not a hard and fast rule.

What a Retirement Payout Might Look Like

In divorce, issues surrounding money and the distribution of assets often get complicated, and in the case of retirement savings, this issue is no different. Frequently, funds that are added to retirement accounts throughout a marriage are considered to be marital property, which means that both your spouse and you will have some legal right to them. However, if either spouse entered the marriage with funds already in their retirement accounts, these funds could be treated as separate property. In other words, it’s important not to assume that your rights to any retirement assets are in place simply as a result of the marriage. You will need to seek out professional help from a family lawyer to plan your next move and ensure your rights are protected.

Because in New York, all retirement plans which are seen as marital property are subject to equitable distribution, they must be considered carefully during the divorce process. The courts of New York use a formula which is known as the “Majauskas” formula that helps to calculate the split that should be used to determine who gets what from the retirement funds. Through this formula, the benefit that has been gathered is multiplied by a fraction. This fraction is made up of a numerator – which is the number of months for which a marriage existed, while the denominator is the number of months that the person with the retirement account has employment with retirement or pension credit. At last, the result would be multiplied by the percentage that should go to the other spouse – which is usually 50% or whatever other percentage is deemed to be equitable.  After all, the law is equitable and not equal distribution.

To find out more information about what decisions go into dividing retirement savings during a divorce in New York, please reach out to me, Mr. Darren M. Shapiro at your earliest convenience. You can contact me either via our free online form, or over the phone at 516-333-6555.