15 Oct Divorce 101, Part 10: How Divorce Applies to 401ks, Pensions, and Retirement
Divorce is never pleasant but determining which assets constitute marital property can cause particular stress, especially when it comes to dividing retirement accounts.
Retirement Assets as Marital Property
Under New York State law, retirement accounts are considered marital property, but only to the extent that the asset-owner earned the funds during the marriage. A party who enters the marriage with retirement savings will most likely be entitled to keep the premarital portion savings as separate property.
For example, if one party began working and putting money into a retirement account before the marriage, but continued contributing to the account after the marriage, the marital portion of the asset will be the deposits made and interest earned during the marriage. In this situation, the person owning the retirement asset will get a credit for the money deposited and earned before the date of the marriage.
If each party has a retirement account, the assets will likely be offset against each other with the remainder divided equitably. If the amounts in the retirement accounts are roughly the same, the parties are likely to waive their interest in the other party’s account.
Division of Retirement Assets
Unless the parties come to another arrangement, the court often applies the “Majauskas Formula” to equitably divide such property. This formula goes as follows: 50% × years of service credit accrued during marriage ÷ total service credit at the time of retirement.
To illustrate: if a person contributed to a retirement fund for 30 years, but was married for 10 of those years, the marital portion percentage of the assets is 30 percent. If the full pension amount is $100,000, then the marital portion would be $30,000 ($100,000 x 30 percent). If the divorcing couple decides on a 50/50 split, then the person not owning the asset would be entitled to $15,000 of the $30,000.
The couple, however, may modify this formula or trade one asset for their pension share during the divorce negotiations.
How Retirement Assets Affect Spousal Support
Retirement accounts can affect spousal support. When one of the spouses is withdrawing from a retirement asset, then a court will view the money they’re receiving as income. The withdrawal will likely change the maintenance calculation. If retirement assets are sizeable enough to allow the party retaining it to sustain a lifestyle comparable to the one they had during the marriage, the court may decide to reduce a spousal maintenance award or decide not to award spousal maintenance to the retaining party at all.