You have worked for years, stashing away a percentage of your income or earning a pension to help support you and your spouse in retirement. Are those funds open to division should the two of you divorce? The short answer is yes.
Pensions, 401ks, and other retirement funds are marital assets subject to equitable distribution in New York. That doesn’t mean your spouse will get half.
Marital Assets Can Include Retirement Funds
Under New York’s equitable distribution statutes, assets and liabilities that are identified as marital should be divided between the two parties. Equitable does not necessarily mean equal. Other factors are considered when determining how property and debt are distributed.
One of the first hurdles that must be overcome is properly identifying the assets as either separate or marital. Separate property is generally not subject to division. The person who owned that property (or debt) before the marriage will retain it after the divorce. In the case of retirement or pension, the money in those accounts might straddle both designations.
Let’s say that you were employed by Acme company before and during the marriage and after the divorce. You put 6% of your paycheck into a 401K and receive a 6% match from the company. Only the amount you earned during the time of the marriage is marital property. Everything you put in before the marriage as well as after filing for divorce is considered separate property.
Only the retirement income earned during the marriage is divided between you and your soon-to-be ex.
A Public Pension Is Subject to Equitable Distribution
A public pension is also subject to equitable distribution. The Majauskas formula is commonly used to determine how the pension is sorted in a divorce. The formula is based on the Majauskas divorce case involving a police officer who had vested but unmatured right to the New York State Policemen’s and Firemen’s Retirement System. The case was eventually settled at the State Court of Appeals.
The Majauskas Formula
The number of years of service during the marriage is multiplied by 50% and then divided by the total service credit at the time of retirement. If the party accrued 10 years of service during the marriage and retired after 30 years, the ex-spouse would be entitled to about 17% of the pension (10 x .5/30 = 16.6%).
Other options include a flat dollar amount or a variation on the formula. The state retirement system can also calculate a hypothetical retirement benefit at the time of the divorce action.
A public pension participant may also be required to do the following:
- Name the ex-spouse as a beneficiary of any pre-retirement death benefit available
- Elect a pension payment option that provides a continuing benefit after the participant dies
Beneficiary designations for certain benefits are revoked when a divorce becomes final unless the terms of a DRO (domestic relations order) specify otherwise. An alternative is the deferred distribution method.
Other Options to Splitting Retirement Funds
The deferred distribution method is another option for spouses to consider. The court (or your negotiated agreement) specifies how the benefits will be split monthly once the pension becomes payable pursuant to the retirement plan.
Keeping More of Your Pension Is Possible
The fact that retirement funds are subject to division does not mean that the split is required. Divorce agreements meted out during mediation can creatively serve the needs of both parties. For example, one spouse can give up any right to their portion of the pension in exchange for sole possession of the vacation home. Another potential option is for the spouse with the pension to take on the lion’s share of the debt.
Dividing marital debt and property in a New York divorce can be overwhelming. At the Law Office of Dennis R. Vetrano, Jr., LLC, our goal is to remove as many stresses and burdens as possible. We won’t use a template formula for your divorce. Your goals and needs are the driving forces behind our legal counsel.
Schedule a consultation to tell us about your divorce case. Based on our conversation, we can provide a preliminary outline of your options. Call (845) 605-4330 to get started.