by Sally Cooperrider, Attorney and Mediator
There are a lot of financial and other decisions to be made when a couple is separating. One issue is how to divide the pensions, 401(k)s, IRAs, and other retirement assets. If the couple works together in a Collaborative case or other negotiated divorce, they can find creative ways to divide these assets to fit within their overall future financial plans.
There are two main types of pensions: defined benefit (a monthly pension, like PERS) and defined contribution (a sum of money, like a 401(k)).
If both spouses have retirement accounts, one method of division is to determine the community property values of all the accounts so that they can be set off against each other. An actuary may be needed to determine the cash value of a defined benefit account, or to trace the community interest in a defined contribution account. A tax-free rollover is then made from the accounts of the spouse with more retirement assets to equalize the accounts.
If only one person has a defined contribution account, one-half of the community funds in that account can be rolled over to an account for the other spouse. A special order is needed to require the pension plan to divide the monthly pension benefits, or to roll over part or all of the assets in a defined contribution plan. The order is called a QDRO (Qualified Domestic Relations Order) for private sector plans, or a pension order for government plans.
In some cases the retirement assets can be traded against other assets, such as the house. If this is done, the retirement assets are sometimes valued with a discount, since they are pre-tax assets and will be taxed when withdrawn. If there are no assets to trade against, or if both spouses want the monthly income from a defined benefit pension, the pension benefits can be divided so that each spouse will receive a monthly check from the retirement plan upon retirement.
In order to decide what method of division is best for the spouses, and to see the effects of different methods on the finances of each party in the future, a divorce financial planner can be helpful. In a Collaborative Divorce, the financial planner will usually be part of the team. In other divorces, the financial planner can be consulted separately. The decision about the retirement accounts can then be incorporated into the overall divorce agreement.