Retirement Benefits Are Divided at Divorce
Q: My spouse and I are divorcing. How will we divide our retirement accounts?
Supreme Court of Ohio has held that retirement benefits accumulated
during a marriage are marital assets, and must be divided as part of an equitable
division of property. Retirement benefits really represent deferred
wages earned during the marriage that are being held for future
distribution. Those assets may be vested, unvested or in payout status.
“Equitable” division means this property is to be divided fairly between
Q: What types of retirement benefits must be considered?
plans offered through employers or accumulated by an individual and
public plans offered through governmental, federal and state entities
must be considered. Federal public plans include the Civil Service
Retirement System, Federal Employees Retirement System, Federal Thrift
Savings Plans, Railroad Retirement Benefits and Military Benefits, in
addition to Social Security. In Ohio, state plans include the State
Teachers Retirement System, Public Employees Retirement System, Police
and Firemen Retirement System, and deferred compensation plans.
plans provided by an employer may include 401(k) plans and defined
benefit plans. A defined benefit plan pays a defined monthly benefit at
retirement for a defined period or for the life of the plan participant.
Plans created by individuals may include traditional IRAs, Roth IRAs or
a self-employed retirement plan. The Internal Revenue Service’s rules
and regulations govern individual plans as well as the amounts that can
be contributed to all individual plans.
Q: How are the values of retirement plans determined?
such as 401(k)s and IRAs are valued from the statements of invested
funds. Most are invested in publicly traded stocks, bonds, mutual funds
or cash accounts. Plans that provide a monthly benefit at retirement
must be valued by determining the present dollar value of the future
benefit. You likely will need expert analysis and testimony to establish
the present dollar value of those plans. Often, experts disagree about
the calculation, including what portion of a plan is marital.
Pre-marriage contributions and their appreciation since the marriage are
not part of the marital asset to be divided.
Q: How are retirement plans divided?
retirement benefits may be divided by segregating each plan
individually. If there are several plans, both private and public, each
spouse may receive one-half of the marital portion of each plan. Also
each party may receive one or more of the individual plans with a
transfer of some portion of a plan to equalize the total distribution. A
third way of dividing benefits is to allow the plan participant to
fully retain the benefit while awarding other assets of equal value,
such as a marital home, to the other spouse. Tax implications must be
considered when choosing this method.
Q: How are plan ownership interests transferred?
transfer an interest in a state plan, Ohio’s Division of Property Order
form must be approved by the divorce court. To transfer an interest in a
federal “qualified” plan, a Qualified Domestic Relations Order must be
approved by the divorce court and the plan administrator. IRAs that are
not qualified plans can usually be transferred by a simple letter of
When drafting transfer documents, one must consider
whether or not plan benefits, such as survivorship rights, death
benefits before retirement and cost of living adjustments, are to be
provided to the non-plan participant. The documents also frequently
contain a provision saying that each party is entitled to gains and
losses on the divided account once the date of division is established,
Q: What about our Social Security benefits?’
Security benefits cannot be divided in the same way as retirement
plans, but divorce courts still must consider those benefits when making
an equitable distribution of property. There is a difference of opinion
as how to calculate the present values of future Social Security
benefits, but there must be an offset of those benefits against the
present value of a spouse’s public plan. If, for example, you have
future public plan benefits, but no Social Security, and your spouse has
Social Security but no public plan, then either the present value of
your spouse’s actual Social Security benefits, or your hypothetical
benefits as if you had participated in Social Security, will be offset
against the present value of your public plan when making an equitable
This “Law You Can Use” column was provided by the Ohio State Bar
Association. It was prepared by attorney Stanley Morganstern, former managing partner of the Cleveland firm, Morganstern MacAdams & DeVito Co.,