The Most Important Thing When Dividing Retirement in Divorce

The Most Important Thing When Dividing Retirement in Divorce

By Justin Kelsey

In many divorce cases, retirement accounts are the biggest or at least one of the biggest assets.  Because of that, it is imperative to understand the options for transferring and dividing retirement assets in a way that maximizes the benefits and minimizes taxes.

Informed Consent is the Most Important Thing when Dividing Retirement in Divorce

It is critical to understand the financial consequences before you make any significant financial decisions about your future. Retirement accounts are complicated, vary greatly in their requirements & plan details, and can result in significant tax liability.  If you don’t feel fully informed when agreeing to how a retirement account or multiple accounts are being divided, then you are taking a financial risk that most likely cannot be undone once your divorce is final.  To avoid making uninformed or bad decisions, consult with your financial company’s retirement division and financial experts for information and advice before making these decisions (see below for the author’s flat-fee options for obtaining this type of advice).

Here are four ways where the lack of information can be costly in dividing retirement accounts in a divorce:

1. Defined Contribution Plans are different than Defined Benefit Plans – If you treat a pension statement the same as a 401(k) statement, you might be leaving a lot of money on the table in your divorce.  Pensions typically payout for an employee’s lifetime and can typically also be extended for the lifetime of a spouse or former spouse.  This means that the value is not simple to calculate and is often underestimated.

2. Market Changes can be Significant – Retirement account values change due to the investment fluctuations in addition to contributions or withdrawals.  A divorce agreement or judgment will identify the division date (after which contributions and withdrawals are not shared), but often market changes are ignored.  This can be a real problem if it takes months (or even years) for the transfer of funds to be completed.  If you don’t identify that market changes are included, you risk losing out on any investment gains during the time between the division date and the actual transfer date.

3. Choosing Offset v. Diversification can have Unintended Consequences – Similar to the issues that arise due to market changes between the division and transfer dates, various accounts are going to be invested differently and will change according to the division and transfer dates.  If you agree to offset multiple accounts and only divide from one account, you may be saving on QDRO preparation fees, but you are risking that the one account used for the offset is more or less favorable of an investment than the others.

4. Failing to Address Survivor Benefits can be Costly – Some retirement accounts cannot be divided until retirement age, and for those accounts, if you don’t also provide survivor benefits for the former spouse, then the former spouse could end up receiving nothing.  Government and private pensions differ significantly on the types of survivor benefits available and on the limitations for those benefits.  It is important to address the survivor benefits in your agreement to prevent inadvertently agreeing to divide a pension and end up with nothing if your ex-spouse dies.

To contact Justin L. Kelsey: Tel: 508-655-5980 Email:

Justin is a collaborative divorce attorney and mediator focused on out-of-court dispute resolution. Justin is the owner of Skylark Law & Mediation, PC, located in Southborough, Massachusetts. At Skylark, they use their knowledge and training to find fair solutions that help bring an END to disputes. They are a FAMILY that helps other families resolve CONFLICT. Justin is also the owner of Gray Jay Endeavors, LLC, a QDRO consulting business that assists with the division of retirement accounts in divorce cases. Justin is on the Board of Directors for the Massachusetts Council of Family Mediators and is a past President of the Massachusetts Collaborative Law Council. He also serves as a member of the Massachusetts Bar Association’s Dispute Resolution Section Council and trains other mediators through Divorce Mediation Training Associates and MCLE. Justin also designed the Stevenson-Kelsey Spousal Support Calculator and the first Massachusetts Child Support iPhone App.

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