Retirement Plans and Minnesota Divorces

Blue Question Mark ManBoth parties to a dissolution should understand the various retirement plans and how these plans impact the division and equalization of marital property.

A retirement plan is either a defined contribution plan or a defined benefit plan.

Defined contribution plans include IRA , 403(b), 401(k)  and profit-sharing accounts.  These plans are for individuals and are employer based. IRAs can be accounts owned with employer or set-up by individuals.   Owners benefit by contributing to his/her own accounts. Employers may also contribute to the employer based plans.   The value of these accounts are based upon the amount in the account plus earnings and losses or the value of the account at the time of the divorce.

These plans are usually not taxed  at the time a party contributes  ( exception ROTH IRA); any withdrawals prior to the time allowed for retirement  (59 1/2)  will be taxed and penalties accessed.  Transfers of these accounts in whole or in part to a party as part of a divorce is not a taxable event.

Defined benefit plans are usually called pensions. The pension plan value is calculated according to a formula. The formula includes final pay and years of service, age of retirement, and expected life expectancy of the owner.  The cash value in the account is not the value to determine equalization. These accounts must be analyzed to determine present value, which is the value at the time of the owner’s expected retirement relative to all of the factors used to calculate the amount at retirement.

Division of Accounts in a Marital Dissolution

Separate Property:  If either party claims an account is his or her separate non-marital property, then it is that party’s responsibility to submit documentation evidencing contributions made prior to marriage and the value of the account at the time of the marriage.  If a party can substantiate that his or her account has a separate non-marital component, then that amount is offset against the marital value.

The parties have to equalize the division of all retirement accounts.  The first step is to obtain current values of each account, inclusive of any present value calculation for defined benefit plans; The next step is to determine how the accounts are to be divided or traded. Finally, the parties need to have counsel draft qualified domestic relations orders or otherwise transfer funds to the party who requires a cash settlement to equalize these accounts.

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Thanks for reading. 

Kate Willmore, Saint Cloud, Minnesota, Divorce, Father’s Rights, Mother’s Rights,  Family Lawyer,  Family Court Lawyer and Mediator Coach

Call me at (320) 492-3606  or e-mail me.      www.

Copyright 2015

About Kate Willmore, Esq.

Kate Willmore, Saint Cloud, Minnesota, divorce, custody and family attorney brings over 25 years experience to every client's legal matter. *** Licensed in Minnesota and in California

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