How are Retirement Accounts and Pensions Divided in a Divorce? 

Divorcing couples in New York are aware of assets that must be divided in divorce, such as the family home, bank accounts, and other assets belonging to both partners. However, many must remember that each partner’s retirement accounts and pensions must also be divided in divorce. Let’s discuss New York City equitable distribution of retirement savings accounts.

How Retirement Accounts and Pensions are Classified

Any property acquired during marriage, including retirement accounts and pensions, is considered marital property. Marital property is subject to equitable division in a New York City divorce. Learn more about property classification and how assets are divided in New York.

Dividing a Retirement Account in Divorce

Various types of retirement accounts exist to save for the future. Retirement savings accounts such as 401(k)s and IRAs are not necessarily required to be split in half. However, an exchange in marital assets should equal a partner’s equitable retirement account distribution. Other factors will also be considered, including:

• The matrimonial assets each spouse will receive
• Each spouse’s needs
• The future financial circumstances of each partner
• Tax implications in asset distribution
• Any other factors impacting the distribution of assets

Spouses who can work together to determine the division of assets may choose to sign a marital agreement detailing the division of these accounts and whether the owning spouse will keep an account intact in exchange for other marital assets. Otherwise, the courts will decide the equitable division of retirement accounts.

A direct transfer from an ex-spouse’s IRA account may be possible to divide IRA funds when other assets are not agreed upon as a proper exchange for funds. Transferring, gifting, or assigning a new owner to an IRA in the original owner’s lifetime is prohibited. However, a court-approved divorce decree or binding separation agreement allows this transfer without tax penalties.

Dividing Pensions and Other Retirement Assets Using a DRO

The court may order a retirement plan administrator to distribute retirement account funds from the owner’s account to a spouse’s account. The administrator may use a Domestic Relations Order (DRO) to allocate certain benefits to an alternate payee. This deferred distribution method will allocate monthly benefits to a spouse once a pension becomes payable. Using a DRO also allows the funds to be divided without incurring tax penalties.

To determine an ex-spouse’s share of a pension, New York courts will generally apply the Majauskas Formula. A DRO may be used to distribute pension retirement funds or the immediate offset method may be implemented, exchanging marital assets for the sole retention of retirement account rights.

Avoid Financial Mistakes in a New York City Divorce

Even the most conscientious spouses commit these common financial mistakes during a divorce. In addition to having a New York City divorce attorney who will advocate for you through divorce, employing the services of a qualified divorce team can divide retirement accounts and pensions into a more straightforward process.

Hiding assets to avoid the division of marital property, such as retirement savings, may lead to penalties, equitable distribution adjustments, monetary fines, and even being in contempt of court. Safeguarding your best interests is still necessary when couples are willing to negotiate. Learn more about the equitable division of retirement accounts and pensions.