Dividing Retirement Benefits In Divorce
There is no argument that divorce is emotionally devastating, but in addition to the mental stress of this event is the havoc it can cause to a couple’s finances. The costs of divorce come from two primary sources: the expenses of the actual process, which vary widely based upon the complexity of the case and the level of conflict between the spouses, and the economic pain of dividing mutual assets into two households. While there are strategies to control the fallout, and panic should be avoided, the financial consequences of divorce are real, and retirement benefits are particularly hard to relinquish. In fact, many spouses assume that these assets are not subject to division in divorce, since their labors typically created the contribution funds. However, Florida specifically identifies retirement accounts as marital assets subject to division, at least to the extent contributions, and associated market gains, were made during the course of the marriage. Any amount contributed or gained before the marriage would not be included in this pot, and remains the separate property of the account holder. As a result, divorcing spouses need to recognize and accept that a significant portion of their retirement savings is going to be distributed, so ensuring the valuation and allocation of the shared funds is correct and appropriate is key. A discussion of how valuation of retirement accounts is generally accomplished, and methods of rebuilding or conserving retirement funds for long-term financial stability, will follow below.
Valuation of Retirement Accounts for Purposes of Divorce
Retirement accounts comprise the most valuable asset many people own, and the dynamics of financial markets and divorce can make assigning a value complicated. Focusing on plans provided by employers – defined contribution (401(k)s) and defined benefit (company pension) plans, each presents unique valuation challenges. Simply looking at raw numbers, a defined contribution account’s value is the number listed on the statement from the financial institution that manages the funds, but this number does not take into account when the money will actually be withdrawn, the tax consequences, and how liquidity, or lack thereof, influences present and future value. Further, the value of defined benefit plans is based upon a formula created by the company that estimates how much the retirement benefit will be worth at the time of distribution. In order to accurately know how to translate that into today’s dollars for division in divorce, an actuary would need to calculate the present cash value, and in either case, financial experts need to examine how a proposed allocation would look if projected twenty years into the future that factors in estimated tax rates and any applicable discounts. In other words, it is complicated, and needs the attention of an experienced divorce attorney to arrive at a fair number.
While rebuilding retirement funds after divorce takes work, it is certainly far from impossible. Rebuilding is complicated by the fact that most retirement plans have contribution restrictions that will slow down how quickly a divorced individual can build up a plan to pre-divorce levels. However, by consistently maxing out yearly contributions, and making regular contributions to a taxable investment account, a person can soon establish a robust emergency fund and savings. If on the other hand, age is a barrier to rebuilding these funds, delaying the collection of Social Security to age 70 to maximize the monthly benefits, through living off other assets received in the divorce and any additional income, can afford a person a modest living without the worry of financial collapse.
Speak with a Florida Divorce Attorney
The financial implications of the divorce cannot be overstated, but this reality does not mean you cannot receive a fair property settlement. The attorneys at the office of Joyce A. Julian, P.A. have years of experience helping clients deal with the complexities of divorce, and will use their knowledge of complex financial issues to get you the outcome you deserve. Contact the Fort Lauderdale law firm for a free consultation.