There are many misconceptions “on the street” about whether and what part of a person’s retirement assets are marital property and therefore subject to being divided as part of a divorce.
The first question is whether retirement assets are marital property in Pennsylvania? The answer depends on whether you and your spouse signed a Pre-Martial Agreement (such as a Pre-Nuptial Agreement) before marriage. Without a Pre-Marital Agreement saying otherwise, retirement assets are marital assets and are subject to division. With a valid Pre-Marital Agreement, these assets can be protected and not subject to being divided.
Let’s presume, for the purposes of this Newsletter, that there is no Pre-Marital Agreement between Husband and Wife. Also, let’s presume that at the time of marriage, the parties were already employed and each had a 401K or other similar retirement account or a Defined Benefit Plan, which pays a person a monthly amount at retirement (there are also many other forms of Retirement Plans subject to equitable division at divorce).
If the parties have retirement assets at the date of their marriage, the value of those assets on the date of marriage is not joint property. The date of marriage value remains separate assets of each party, in the event of divorce. However, the increase in value of this separate property, during the marriage, is marital property as are the contributions into the account by each party during the marriage (including the matches made by an employer, if any).
For example, let’s presume that at the date of marriage Wife had a 401K worth $10,000.00. That $10,000.00 would remain the separate property of Wife at divorce. However, let’s presume that $10,000.00 increases in value by $20,000.00 during the marriage. That $20,000.00 increase in value during the marriage is marital property.
Further, as stated above, all contributions made by Wife into her 401K during the marriage as well as the increase in value of those contributions during the marriage, are also marital property subject to division.
Also be aware that the removal of any money from a 401K before a person is 59 ½ years of age is subject to not only the payment of income tax on the amount removed, but also an IRS penalty. The removal can be done in a tax and penalty free manner, through the use of a Domestic Relations Order, which can be prepared by a knowledgeable Family Attorney or a specialist who prepares these orders.
Don’t get hoodwinked into thinking that retirements assets are not marital property. They are marital property and go into the “marital pot” together with the value of all other assets acquired during the marriage.