Divorce creates significant ripples in your finances. These include the loss of a second income, the need to maintain a separate home, coupled with alimony and child support payments. It also involves the division of marital assets, including retirement accounts and pension plans. A family attorney in Arizona can help you protect these assets as you look ahead towards your golden years.
Pension Plans and Arizona Statutes
Arizona courts treat pension plans the same as other community property. Unless otherwise stipulated in a prenuptial agreement, this means they can be divided between spouses. It is up to the court to decide upon the most equitable distribution of these defined benefit accounts.
It is important to note that the statutes consider any pension benefits earned before the marriage as separate property. Thus, these are not subject to the division of community property. Any benefits earned before the marriage are therefore the sole property of the individual who has earned them through the course of their employment.
Options for Division of Pension Plans
It is possible to negotiate the division of pension payments. For instance, it may be advantageous to offer a more significant share of real property or cash assets in lieu of monthly pension payments. This process can involve an estimation of the value of the pension plan based on the potential life expectancy of the recipient. Thus, it’s essential to carefully consider any offers on the table because you may end up giving up more than you will receive down the road.
The first method for valuing a pension plan is the present cash value option. This involves assessing the pension at its current cash value. This sum is then divided in half, which is then awarded to the non-employee spouse from community property. When retirement is far in the future, many divorcing couples opt for this choice.
It is also possible to use the reserved jurisdiction option. This method awards a portion of the employee spouse’s pension to the non-employee spouse. This distribution occurs when the employee spouse reaches the retirement age prescribed in the pension plan. When retirement isn’t that far off, this can be a beneficial option for both parties because it helps preserve assets at a point in time in the individual’s career where it’s more difficult to recover financially.
Vesting and Other Considerations
If it is a vested defined contribution pension plan, the current value is a close approximation of how much the individual has contributed. Thus, you can argue that it is appropriate to discount the value of such accounts. A family attorney can help you calculate the total contributions made to the account and calculate the discounted value based on the amount contributed from your income and the time until the account becomes vested or you reach retirement age.
There are also tax consequences to consider. If your ex-spouse requests a distribution from your retirement or pension accounts, you will be liable for the tax penalties. These can be factored into the calculations, but you should know that Arizona courts are all but sure to require that you base your calculations off current tax rates rather than estimated tax rates 5, 10 or 50 years down the road.
Contact Simon Law Group, PLLC at (480) 210-4981 for more information about how to protect your pension in a divorce. As a family attorney in Arizona, we work hard to help you retain the rewards of your years of hard work.