Long Island Divorce Attorneys Protect Your 401(k)
Aggressive representation to help secures your retirement assets
Few assets have a greater impact on your financial security than your retirement savings. Divorce can throw a wrench in the works, so that all your best-laid plans grind to a halt. If you’re anxious about how New York’s Domestic Relations Law or the specific decision in your case will affect your pension plan or 401(k) account, Bryan L. Salamone & Associates, P.C. can provide a thorough analysis. Our aggressive attorneys fight for your financial rights during negotiations and urge courts to preserve your fair share of retirement savings.
How New York treats marital vs separate property
In New York, divorcing spouses get to keep their separate property, while marital property is subject to equitable distribution. You might think that your retirement savings are separate and yours alone, especially if you opened the account before you got married. However, New York law says that assets, including retirement benefits, earned during the marriage belong to the marital estate.
The case for sharing retirement benefits under New York’s Domestic Relations Law
It is settled law that the dependent spouse of a provider with a retirement plan is entitled to a fair share of the plan’s proceeds. Among the factors the court must consider during equitable distribution are three points germane to retirement asset division:
- The loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution
- Any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party
- The tax consequences to each party
As a divorce changes the dependent spouse’s rights to share in retirement savings, the court must act to preserve that claim. How much of a share the dependent spouse gets depends on tangible and intangible contributions made to the acquisition of the retirement assets. Someone who does not earn outside income aids their spouse’s ability to do so by maintaining the home, caring for the children and providing emotional comfort. They might also have previously provided financial support while their spouse earned a degree or professional license. These contributions operate to give the dependent spouse a claim to a fair share of their partner’s retirement assets. For couples who married after the 401(k) or other retirement fund was created, the dependent spouse cannot claim an interest in the fund’s assets before the marriage.
Unlike other assets in an equitable distribution, retirement funds and pension benefits usually cannot be accessed without severe tax consequences. To avert the potentially severe penalties and tax liability associated with cashing out early, the law allows the account to remain intact, while allocating assets for future distribution under a qualified domestic relations order (QDRO) or, in the case of government employees, a domestic relations order (DRO).
Avoiding the pitfalls of qualified domestic relations orders (QDROs)
Once the court has determined that a dependent spouse has an equitable claim on retirement assets, the attorneys for each side usually negotiate a QDRO or DRO. Here is where your attorney’s experience is very important, because a mistake or omission in drafting the agreement can be costly. After using the discovery process to review the pertinent financial and pension information, we negotiate to include terms that protect your rights against various contingencies. Issues we address include:
- Early retirement due to disability
- Depletion of pension due to loan defaults
- Pre- and post-retirement survivorship benefits
Of course, a QDRO is not always necessary or in the best interest of every client. We analyze the present value calculation to determine whether a QDRO is preferable to an offset payment from other marital assets and advise you on the best course of action for your particular circumstances.
Protecting a 401(k) in New York divorce
The best way to protect a 401(k) in divorce is to remove that asset from the marital estate with a prenuptial or postnuptial agreement. If one spouse earns most or all of the couple’s income, it’s hard to make a case for the exclusive right to retirement savings. But if you have several retirement accounts, it’s easier to declare one separate from the estate. Two-career couples have an easier time negotiating agreements that give exclusive rights to each spouse over their own 401(k)s and IRAs. However, any marital agreement must be negotiated, so it’s possible you might have to surrender other property to protect your retirement account.
Prenuptial agreements and 401(k) protection in New York
New York has a marital agreement statute that requires transparency, good faith and fairness in the execution of a prenuptial or postnuptial agreement. If you want to use a prenup to protect your 401(k), you should work with an experienced attorney to make sure you comply with all requirements to be sure your legal instrument can survive a court challenge.
Common challenges in New York 401(k) division cases
The biggest problem with the division of retirement assets via a QDRO or otherwise is ambiguous language that can lead to misunderstandings and faulty execution. As a result, there could be misallocations or an unnecessary loss of funds. Conflicts can also arise over survivorship rights if the owner predeceases the other spouse. These are even more reasons why you must work with an experienced attorney who can set forth clear terms for asset division, making the order fully enforceable.
Negotiating a fair settlement agreement
Another option is to settle all claims to a 401(k) plan as part of your divorce agreement. The owner can keep the account, and the other spouse can be compensated with other assets from the marital estate. Such an agreement relies on an accurate valuation of the account and its projected growth, as well as the assets used in the offset.
Contact Long Island’s divorce leader to protect your retirement plan
Your financial security is riding on your pension or 401(k) account. With an experienced attorney from Bryan L. Salamone & Associates, P.C. managing the equitable distribution of your property, you can be confident about your financial future. Call us at 1.631.479.3839 or contact us online to schedule a free initial consultation.