“I am primarily concerned about the well-being of my children and getting enough support to pay the bills right now – should I be worrying about retirement benefits too?”
The answer to this question from a client is a resounding “yes”, particularly if you are the lower-earning spouse or the spouse who has taken time off from your career in order to raise your children or for health-related reasons. Here’s why.
Retirement benefits are assets which are divisible in divorce, just like an investment account or a house. This is true whether you are getting divorced in Maryland, DC, or Virginia.
Most retirement benefits are accumulated as an incidence of employment. For example, the XYZ company establishes a 40l(k) plan to which they contribute 5% of the employee’s salary on an annual basis. In place of or in addition to that “percentage of salary” contribution, the plan may provide for the company to match any contributions that the employee makes up to a specified ceiling.
So the higher-earning spouse will generally accumulate more retirement benefits. And the spouse who takes time out of the work force won’t accumulate any benefits during that period of unemployment, which may be many years. If you have earned less or had periods with no income, the amount of retirement benefits accumulated in your name may be much lower than those in the name of your spouse.
In addition, retirement benefits have a “tax deferral” feature. That is, the income on retirement dollars which accumulates inside a retirement plan is not taxed until it is withdrawn from the plan, usually after retirement age. The impact of this “deferral of taxes” feature is greatly compounded when retirement dollars are left in the plan to accumulate over many years. So the higher-earning, longer employed spouse saves more retirement dollars and those dollars grow into even more dollars over the duration of a mid- or long-term marriage.
Developing a strategy in your divorce case for you to receive a fair share of your spouse’s retirement interests where there is a disparity in value is a key component of planning for your future. Because there are so many different kinds of retirement vehicles and so many technical requirements which must be met in order to accomplish a tax-free transfer of retirement assets as a part of the divorce, your divorce attorney needs to be a specialist in understanding the different types of retirement plans and the different statutes or documents which control how they can be divided. Huge differences exist, for example, between the retirement benefits available to the employees of the World Bank or International Monetary Fund and the self-employed dentist who contributes to a SEP-IRA.
So, it is important to your planning for your future financial security for you and your attorney to:
- gather information about all of the retirement interests in your name and the name of your spouse,
- ask the right questions about the Plan provisions and other constraints on the division of the retirement benefits, and
- include provisions for needed levels of income during your retirement years as well as during the working years in the comprehensive divorce negotiations.
So yes, you are entitled to a share of your spouse’s retirement benefits in your divorce and the best legal representation will ensure that you actually receive that share.