The valuation and division of a deferred compensation like an IRA or 401K is one of the most important issues in many Florida divorces because it constitutes one of the most significant assets of most married couples.  There are a number of issues that affect the division of a retirement plan or 401K that makes dividing this type of asset problematic during a divorce.  There may be challenges determining the martial and separate property portions of the plan.  While there are many types of deferred compensation plans including 401Ks, IRAs, Annuities and Roth IRAs among others all can be marital property, which means they are subject to division.

One of the characteristics of a retirement or deferred compensation is that the value of a deferred compensation plan is usually built over many years.  This often means that there will be contributions that were made to the compensation plan both during and prior to the marriage.  Only the portion of the deferred compensation plan that represents contributions during marriage and appreciation in value of contributions during marriage will be considered marital property and subject to division.  The process of dividing the contributions prior to and during marriage and determining the appreciation that is attributable to each is a complex process which requires an experienced Florida family law attorney.

The process of determining the amount of the value of a deferred compensation plan that is the result of marital contributions and appreciation from such contributions involves using a mathematical formula sometimes called the “time rule.”  The time rule is basically a fraction where the numerator represents the number of months that contributions were made during the marriage while the denominator represents the total number of months in which the employed spouse made contributions to the plan.  This ratio is multiplied by the cumulative present value of the deferred compensation plan.  The result is the portion of the deferred compensation plan or retirement that is marital property.  The situation gets even more complex when the spouse who received the retirement plan is not yet retired.  This means there will be subsequent contributions to the retirement plan further complicating division of the plan.

The division of a deferred compensation plan usually involves the preparation of a Qualified Domestic Relations Order (QDRO).  The parties to a divorce cannot simply withdraw a portion of the funds in a deferred compensation plan to pay the other spouse’s share without incurring substantial tax penalties.  This issue is handled in a couple of ways.  If the spouse seeking their share of the other spouse’s retirement plan needs funds now, then sometimes their may be a buyout by offering cash or other assets of comparable value.  The most typical approach is the preparation of a QDRO that directs the plan administrator how to divide the interest in the plan according to marital and separate property contributions.  A QDRO must be served on the plan so that the retirement administrator does not simply release the funds to the employee spouse at the age the spouse is eligible to receive the funds in the plan.

The division of a retirement plan in a Florida divorce is complex, and a QDRO must meet very strict requirements that usually are provided by the plan administrator.  Anyone facing a Florida divorce where a retirement needs to be divided should seek immediate legal advice.  Even experienced family law attorneys can find preparation of a QDRO challenging and may work with a forensic accountant.  At Eric N. Klein & Associates, P.A., our Fort Lauderdale divorce attorneys can explain the process of dividing a retirement plan or other marital property and represent you in the process.  We offer a free initial confidential consultation so call us today at 954-580-8080 to schedule a time to come in and meet with us.