EQUITABLE DISTRIBUTION OF RETIREMENT AND DEFERRED COMPENSATION ACCOUNTS IN A RECESSION
One of the more difficult issues faced by couples who are divorcing in the current economic environment is how to divide retirement or deferred compensation benefits, especially defined benefit plans such as a 401(k), SEP, or IRA.
New York law specifies that the ‘cut off’ date for classifying retirement assets as either martial property or separate property is the date on which a divorce action is commenced. The law also provides for a range of dates for valuing the marital portion of the account, ranging from the commencement date through the trial date.
Courts have developed certain standards for determining which valuation date should be applied to a particular asset class such as retirement and deferred compensation accounts. Under certain circumstances, the Courts may value the asset as of the date of commencement and under others it may use the trial date as the valuation point.
A problem arises in today’s economy where after the commencement of a divorce action the marital portion of the retirement assets declines in value. Disagreements arise over which party should bear the cost of that decline. Some common discussion points are:
1. Is the account actively managed (traded) by either or both spouses?
2. Which spouse is responsible for selecting the assets held in the account?
3. Which spouse should bear the risk of the asset declining during the time the divorce case proceeds in Court.
4. How are the post-commencement contributions into the account valued?
Unfortunately, there seems to be very little guidance from the Courts at this time as to how they are dealing with these issues in this new economic environment. In the absence of any definitive authority, it is extremely important for people going through a divorce to have as much factual information about their retirement assets as they can obtain and to carefully think through and negotiate this complex issue.
If you or someone you know would like more information on this topic, please feel free to contact my office.
I think every attorney should have a conversation with the client about investment risk. Leaving one party with all of the risky retirement assets (such as the stock plan, the IRAs, etc.) and the other with the government pension, is not a good idea. A partial offset can be utilized to spread the risk to both parties. What I am seeing in my practice is attorneys who thought they were clever two years ago in not putting shared investment experience in the agreement (because they represented the titled spouse) are finding the efforts to have backfired, now that titled spouse will take all of the losses.
Hi there,
You know I thought my partner and I did our homework before we hired our current lawyer. Asked all the right questions and he seemed really nice. Our problem is that he has been fighting for this divorce for 7 years! How is this possible? It's completely ridiculous. His ex-wife gets too many benefits in the current seperation agreement and doesn't want to sign the papers because she loses "those things." I'm sure my partner was mislead when he originally signed the agreement but now we're stuck because we can't move on and get married, she has another partner too so it's clear that the marriage is over. What else can be done because she won't sign the papers, won't answer the door to the process server and thinks the whole thing is a joke! being in the military, my partner is concerned that if he was to go contested that he would be required to fly back and forth from NY state (we are located elsewhere) and would not be allowed the time off. Surely after 7 years of happily living by the seperation agreement, there should be a divorce decree??? Our lawyer, now fairly sick of her games won't contact us back and given that he has a rather sizeable retainer, I am concerned. What should our next step be? Please help!!!