Most people in Fairfax and Leesburg have a lot of wealth tied up in their retirement plans.
Some in the area may have a 401(k) plan through their private employers, while public employees and others may be entitled to a retirement pension after so many years of service.
Still others may have private retirement plans, like an Individual Retirement Account or some other retirement plan.
Virginia residents rely on these funds so that they will have a stream of income after they retire so that they can enjoy their Golden Years. Without these funds, a person could wind up having to rely exclusively on government assistance, charity or friends and relatives. If they are able to do so, they may have to just keep working.
Divorce will probably mean a cut a retirement funds
Under Virginia law, most retirement funds, including contributions during the marriage and the fund’s return on investment during the marriage, will be considered marital property.
In a divorce, a judge will divide all marital property in an equitable manner.
What this means when it comes to retirement plans is that both spouses are entitled to their respective fair share, with the judge deciding what fair looks like depending on the couple’s circumstances. This is true even if the person holds a retirement plan in his or her sole name.
Unless one spouse agrees to come up with another way of paying the other spouse off, chances are that the other spouse will be entitled to up to a 50% share in retirement funds. Someone going into a divorce will need to account for this when reviewing his or her retirement goals.
Valuation of pensions
Some retirement plans, like a 401(k), may be relatively easy to put a value on, as it is fairly simple to look up a cash value for this type of retirement plan.
There may, however, be some questions as to which dates the court should use to determine the value of the plan at the beginning and the end of the marriage.
Pensions are harder to put a value on since doing so will mean converting the promise of a future income stream into a lump sum. Most frequently, people do not try to obtain a present value of the pension because the analysis involved is not absolute and can be distorted based on presumptions that are made when conducting the calculation. However, doing this may be helpful and it will likely require the help of an actuary or other expert with skill in reviewing and evaluating pensions.
The reason getting an accurate value on a pension is important because it may help in the settlement negotiations when dividing up assets. Over-estimating the value of a pension will mean that a person may wind up unfairly losing a lot of his or her income. It is unlikely though that a judge would consider the pension valuation during a contested trial, but instead would focus on dividing the pension interest based on the coverture fraction.
Paperwork
On the practical side, dividing up a retirement plan will require the parties to prepare and submit the appropriate paperwork to the plan’s administrator. This paperwork can be complicated and requires attention to detail, as mistakes can have negative tax consequences, hold up the proceeding or lead to an incorrect property division.
