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How to Properly Classify Retirement and Pension Assets
Divorce can be one of the most challenging events of anyone’s life. The stressors can quickly become emotionally overwhelming. Another of these stressors is settling the division of assets between both parties involved. This can be a long process requiring both sides’ negotiation and patience. Furthermore, one of the main factors many consider when going through a divorce is how this process will affect their future—not just their family’s future but their own as well. Because of this, it’s essential to carefully consider how retirement and pension assets are affected by a divorce.
In Minnesota, any assets acquired during the marriage are usually classified as marital property. This can include retirement accounts like 401(k)s, IRAs, and pension plans funded while the couple was still married. This only applies to contributions to the accounts while the marriage was in place. Retirement assets built up before the marriage or received as gifts or inheritances are generally viewed as non-marital property and aren’t typically divided during the divorce.
For men going through a divorce, it’s essential to understand where the retirement funds came from. The key to understanding this is that assets distributed in a divorce are classified as marital or non-marital property. If a man contributed to a pension plan during the marriage, those contributions and any growth would typically be considered marital property. On the flip side, if the pension were created before the marriage, only the portion that grew during the marriage would be subject to division. Determining an asset’s classification can be a nuanced process that requires a good amount of legal knowledge. A skilled divorce lawyer can correctly classify all of your assets.
At The Legal Dad, we have helped many fathers settle their divorce with favorable outcomes. Our attorney has been in your shoes and wants to hear your case. To schedule a free consultation, call The Legal Dad at 612-712-3405.
How much are the assets worth?
After correctly identifying which retirement and pension assets are marital property, the next step is to assess their value. The valuation of retirement accounts can vary widely based on the type of account since different account types provide their user with value in various ways. For example, a 401(k) usually has a clear market value based on its current balance. Valuing a pension plan can be more complicated, as it often requires an assessment by an actuary to determine its present value. Pensions, however, promise a specific monthly benefit at retirement, influenced by factors like years of service, salary history, etc. For people navigating divorce, it’s often a good idea to bring in a financial expert or actuary to assess their pension’s value accurately. If the asset is undervalued, it can lead to an unfair split, affecting their financial security in the future.
In Minnesota, if you’re dividing retirement assets like 401(k)s and pensions, people will use a Qualified Domestic Relations Order (QDRO). This legal document outlines how retirement benefits will be split between spouses. It specifies the amount each person will receive and is essential for the retirement plan to release funds to the non-employee spouse without any tax consequences.
Men going through this process should collaborate closely with their attorneys to ensure the QDRO is properly drafted and processed. If the QDRO isn’t set up correctly, it can lead to delays or disputes later. For more reliable information on retirement and pension assets, the official government page of the Minnesota Legislature has more information on just that.
Finalizing a Division Agreement
After classifying and valuing retirement and pension assets, the next step is following through on the division agreement. This involves transferring the assets and ensuring everything aligns with the divorce decree and other conditions included in said decree. It’s vital for men to see that the terms of the decree are upheld, as any non-compliance could lead to financial penalties or the loss of benefits.
Minnesota’s divorce decree specifies how retirement assets should be divided, including essential details about Qualified Domestic Relations Orders (QDROs). Thorough records of all communications and agreements related to retirement assets are important. This type of thorough documentation can be crucial in resolving disputes, particularly if the other party needs to be more cooperative in executing the QDRO or if there are inconsistencies in how assets are distributed.
Lastly, you should consider the tax-related consequences of dividing retirement assets. Even though QDROs allow a tax-free transfer of retirement benefits, any withdrawals made after the divorce could be vulnerable to taxes and penalties, depending on the age of the account holder and the type of account involved.
Now that I know what to do, what is the next step?
In tough times, just knowing the path forward sometimes isn’t enough. Everyone needs a helping hand in times of hardship. This is why many men going through a divorce seek the help of an experienced lawyer. Our attorney at The Legal Dad has been in your shoes before. He is dedicated to helping men going through the difficulties of divorce reach a fair and favorable outcome. We want to hear your case and offer the guidance you need. For a FREE consultation, call us at 612-712-3405 or visit our website.
