Retirement assets are often one of the most highly valued assets within the marital estate. These assets grow over time, making it difficult if not impossible to rebuild their value. Although a divorce settlement agreement that divides a portion of these assets to each spouse is generally wise, making sure the non-owner of the retirement account actually gets their share is not always an easy task.
What factors affect the division of retirement assets?
Retirement assets are particularly difficult to split. This is because they are often a future interest, one that the owner does not take out until the time of retirement. Another issue is the fact that they are often maintained by a third party. In many cases, the parties can ensure the split of a retirement asset as outlined within a divorce agreement through use of a Qualified Domestic Relations Order (QDRO). This court order serves to require the third party that holds the retirement asset to make payments to someone other than the owner of the account.
Although useful for many types of retirement accounts, QDROs do not always work. One example is certain Indiana government pensions. In a recent example, a divorcing couple attempted to split an estimated $1.1 million pension benefit. In this case, the husband worked within the Sheriff’s Department, so the Indiana government held the pension. As a result, a QDRO would not help ensure division.
To make sure the wife received her portion of the funds within the pension, the court ordered the husband to take out and maintain a life insurance policy with the wife listed as the sole beneficiary. The husband appealed the ruling and argued the following:
- Presence of the policy. First, the husband argued that the court could not order him to take out a life insurance policy.
- Payment for the policy. Next, the husband stated in his appeal that the law does not allow the court to force him to pay for the policy.
- Value of the pension. Finally, the husband argued that the court used the wrong value of the retirement account because it did not take tax implications into account in its calculation.
Ultimately, the appellate court stated that they can require a life insurance policy but cannot require the husband to bear the cost alone. Instead, the law requires the parties share the cost of the premiums. The appellate court also stated the husband did not preserve the argument about tax implications because he did not bring it up in the initial case. However, tax implications should normally be considered at the trial court level.
What should I learn from this case?
This case is an example of the complexity of division of retirement assets. It is important to take the type of account into consideration as well as other factors, such as tax implications and life insurance on the asset, if necessary, in the initial phases of the divorce proceeding. A failure to do so can mean you lose the chance to make adjustments in the future.