Pensions, Retirement Accounts and Stock Options

This section is a bit longer than other sections of the website, but the basic rules are the same as for other types of assets – determine what portion of the asset is “marital”, value the marital asset, and then decide how it will be distributed (if you want to stop reading here).

What portion is marital?

This involves what portion of the account or benefit was accrued during the marriage. For example, money contributed to a retirement account before marriage or after the date a divorce petition is filed, is, with some exceptions, “non-marital”. It’s a little more complicated for a “defined benefit” plan or pension – where your retirement benefit is not money in your IRA or 401k, but a monthly pension or benefit you receive if you work at your job long enough, with the amount of the benefit based on the factors set out in the retirement plan – e.g. age at retirement, average income over a certain period of years, etc. The marital portion of this kind of retirement plan is based on the number of years during the marriage the pensioner was working and accruing benefits, versus the total number of years he or she has to work to receive the benefits. For stock options, even if the option is “unvested” it is still a marital asset under Florida law.

The next question is – how do we value the marital portion

of a retirement account or benefit or of stock options earned during the marriage. For an account where both parties are over the age where they can withdraw funds without penalty, you could just look at the amount in each account. For a more complicated situation, for example a pension where benefits can’t be received unless the spouse works at the job, say another 10 years – one approach is to arrive at a “present value” for the pension. In addition to the basic factor you look at in determining present value – i.e. money you will receive in the future has less “value” than money you receive now (you can invest money you receive now and earn a rate of return), for pensions you also have to factor in that the pensioner might never work enough years to receive the pension, and as many people these days unfortunately have come to know, money in a pension account is not necessarily completely safe and certain to be there. If there are penalties and taxes associated with an early withdrawal of retirement funds, that would be addressed also as part of a present valuation of an account. Unvested stock options are often treated as difficult, if not impossible to value – see below for how this is sometimes handled. There are also some special rules for certain retirement accounts, for example, military pensions.

The next step is – how to “distribute” the marital portion

of the retirement asset. One way, for example, if the parties are looking at the present value of a retirement account, is to say one spouse gets Retirement Account X, valued at $100,000, and the other spouse receives other assets valued at the same amount, as part of a division of all of the spouses’ property.

When there is a pension to divide, sometimes the spouses or the Judge will decide that if/when one spouse begins or is eligible to receive his or her pension, the other spouse will receive his or her share of the monthly benefit at that time. This is done via a special type of order – a Qualified Domestic Relations Order, or QDRO as it is often called (pronounced Quadro). Some of the issues to be addressed in arriving at the terms for the QDRO are: What share of the benefit does each spouse receive? Sometimes an employer provides a bit of an incentive for early retirement by building in an increased “actuarial” value for a pension if you retire early, and the parties can negotiate who receives this early retirement benefit built into the pension, and address this in the QDRO. The parties can also address, for example, what “survivor benefits” the other spouse receives, if the pensioner dies after he or she is eligible for benefits, but before benefit payments have started. After the QDRO is prepared, there is a process for getting it approved by the administrator of the pension plan, and then signed by the Judge. There is a special type of order used to divide benefits from the federal government for a member of the military and certain law enforcement officers.

For stock options there are some alternatives, including the parties receiving their share of the options in the future as they vest or become transferable, or the parties can agree as to the value of the options now, although determining the value of unvested options is difficult.

I find that my background in business and tax law – including working at a “boutique” tax law firm which clients and family law attorneys turned to for advice and to prepare complicated QDRO’s, is valuable in working through complex retirement account issues, addressing these issues in negotiations with opposing counsel, and litigating these financial issues when the parties are not able to arrive at an agreement.

Call me at (954) 636-7498 or use the contact form on the website, and we can discuss the Pension, Retirement Account and Stock Option issues in your case.