Nolo's Essential Guide to Divorce - Emily Doskow [123]
The value of a defined contribution plan can be determined as of the date of your divorce, because it's possible to distribute the money right then-it has a present, rather than just a future, value. To find out the value of your defined contribution plan, contact the plan administrator or review your most recent annual statement. Your employer is required by law to provide you each year with a summary of the plan's assets and a statement of your benefits. Many provide them quarterly.
Vesting and Marital Property Rights
When you have a defined contribution plan, you need to pay attention to the concept of "vesting." Being vested means you actually own the benefits and are entitled to receive them at retirement (or when you leave your job). You always own the portion of your benefits that you contributed yourself; where vesting comes in is in relation to the portion your employer contributes. The vesting schedule should be set out in the plan document and, in most cases, in your employee handbook. Often you'll vest in a certain percentage per year until you become fully vested after you stay at the company for a certain period of time.
Vested benefits are always considered marital property. States treat nonvested benefits differently at divorce. Some states consider them separate property, and you don't have to divide them at divorce. But some states consider nonvested benefits marital property, which means you'll have to account for them-and possibly pay your spouse for a share of benefits that you don't yet own. If you change jobs for any reason, you could lose those benefits and never get what you bought from your spouse. If you have nonvested benefits and you think a job change is in the offing, consider negotiating to have the nonvested portion of the plan benefits divided when they vest, not at divorce.
Valuing a defined contribution plan and determining how much of the funds are marital property requires that you figure out how much you contributed before and during your marriage, as well as the rate of gain or loss during those periods.
These calculations aren't really doable by mere mortals-it's well worth your while to hire an expert. An actuary can calculate the value of your retirement savings and figure out what portion should be divided between you and your spouse and what portion is yours alone. An actuary will probably charge between $250 and $1,000 for the job.
Dividing Defined Contribution Plans
Defined contribution plans are much simpler to divide than are pensions. Once an actuary calculates what portion of the benefits is separate and what portion is marital property, you can simply roll over the nonemployee spouse's share of the account into another taxdeferred savings vehicle at the time the divorce is final.
Some plans require a court order (a QDRO, discussed above) before they'll do the rollover; some require only a letter from you, along with a copy of your divorce order. Ask the plan administrator what you'll need.
For example, if you worked for your company for 15 years, ten of which were during your marriage, then approximately two-thirds of your 401(k) account is marital property (the amount won't be exactly two-thirds, because return on investment has to be taken into account that's why you need an actuary). You and your spouse agree to split the marital share of your retirement equally, so you ask an attorney to prepare a QDRO instructing your plan administrator to roll over half of the two-thirds into your spouse's tax-deferred individual retirement account.
Roll the money over, not out. Don't have the plan administrator distribute the funds directly to either spouse. The funds could become subject to withholding at the time of the transfer if you do. Instead, make sure you do a "trustee-to-trustee" transfer directly from one spouse's tax-deferred account into the other's.
Military Benefits
There are some quite specific requirements for distributing military