Retirement Plans

January 31, 2024 | By Doppelt and Forney
Retirement Plans

In San Diego, California, many family law and divorce cases involve division of retirement plans. This can be a complicated area of the law and expert advice from a San Diego divorce lawyer is necessary to determine the true interest. There are many types of retirement plans including private company plans, State of California plans and Federal government plans. In family law and divorce cases, there are two major categories of plans: defined benefit plan and defined contribution plan. Depending on which plan is involved will determine the law which applies to the division.

In a defined benefit plan, the employee is entitled to a benefit which is calculated using many different factors. Many companies use the highest salary or years of service or age of retirement however there are many others which are used in this calculation and each retirement plan is different.

Many government retirement plans require that the employee make a contribution to the retirement plan. Many private retirement plans do not require that the employee make a contribution to the retirement plan. In San Diego, given the large amount of military families and government contracts for private companies, it is important to understand the exact plan for the retirement for division purposes.

In a defined benefit plan, the division for family law and divorce cases is often referred to as the "time line rule" and this can be calculated by most family law clients as well as San Diego attorneys. For illustration purposes, the below example is used

Date of Marriage: June 1, 1995
Date of Separation: June 1, 2005
Date of Employment: June 1, 1995
Date of Retirement: June 1, 2015

In this example, the community property interest would be 50% of the total retirement plan since the parties were married when the employee commenced receiving the retirement plan and the duration of employment is 20 years. As such, the non employee spouse would be entitled to 25% of the total retirement plan and the method of division is commonly known as a Qualified Domestic Relations Order. This is used to divide the retirement plan for the defined benefit plan.

There is also an alternative in which an expert [normally an actuary] is used to calculate the "value" of the plan given life expectancy and other factors and then one party "cashes out" the other. This is not commonly used in the San Diego Courts. If the employee spouse was employed prior to the date of marriage, then there is a different formula which is used. Again, an attorney needs to be consulted in this area.

In a defined contribution plan, as opposed to a defined benefit plan, this is calculated by the amount contributed for the account of the employee plus any growth in the account during the date of marriage through date of separation. Some of this contributions are made solely by the employee such as an individual retirement account or Keogh plan. Some of these contributions are made solely by the employer such as in a profit sharing plan. Some of these contributions are really a hybrid of both such as many 401K plans where there is a matching of the employee contribution or by a tax deferred annuity or other financial account. As opposed to the defined benefit plan, the valuation of these accounts are less complex. An accountant needs to be consulted as to the availability of a "roll over" from the employee account into the non employee account.

There are also considerable tax implications since many of these defined contribution plans have not been taxed and there is normally a tax implication upon receipt of the funds. Our lawyers do not give tax advice and a qualified professional must be consulted. The calculation of the division is normally from date of marriage to date of separation for valuation purposes given the contributions during this time period and any increase in value or accumulation during this time period. Normally, a Qualified Domestic Relations Order is not needed for the division of the account into two accounts however all cases are different.

There are also issues which arise as to the date of the valuation of the retirement plan. As above, it depends on whether it is a defined benefit plan or a defined contribution plan. In sum, the community has an interest in all retirement plans earned during the marriage. The issue becomes when is a benefit earned.

The calculations can be different for each type of plan and an expert opinion is needed if there is a disagreement between the parties as to the actual date. In most family law case, the date of valuation is agreed upon and is not a contested or litigated issue in the case. If the date of valuation is an issue in your family law or divorce case, please call our firm at 858-312-8500 or contact us online for a complimentary virtual consultation with a lawyer on this issue or any other in family law or divorce cases.