One of the most important questions that couples seeking a divorce need to face is: “How much is he/she going to want or receive?” Putting aside the obvious issue of fairness for a moment, it is wise for couples to examine the total economic picture rather than focusing on a single factor. For example, retirement accounts are subject to equitable distribution. This means that a divorcing spouse is entitled to as much as fifty percent of the current value of a retirement or pension plan. The actual amount is dependent on the time frame when the asset was earned during the marriage.
However, what is good for one is also good for the other; therefore, it might be wise to not seek some of your spouse’s retirement benefit if you are going to have to share an equal or greater amount of your own. Also, it is important to consider when this money will become available (you’ll need to wait until your spouse’s earliest date to retire), because the value of your share at the time of divorce needs to be compared with its value at the time your spouse is eligible for retirement and its projected value then.
You might want to substitute another asset that you are immediately entitled to in place of the retirement benefit. For example, there can be equity in the marital residence, and opting for this would provide you with cash up front that will help you begin your new life. As an example, consider the following:
Based on the formula that came from the Majauskas case in 1984, let us assume that one spouse is entitled to one-half of a retirement account that has a current value of $100,000. His/her share, if the entire amount was earned during the marriage, would be 50% or $50,000. The smart thing for the receiving spouse to do would be to roll this amount into his/her own retirement account. If you did not do this and instead wanted the entire amount in cash, you would be subjected to an early withdrawal penalty, usually ten percent. Hence, your net would be $45,000. On the other hand, if the marital residence was worth $200,000 with a current mortgage of $100,000 there would be $100,000 in equity. If the person leaving the marital residence took his/her full equity of $50,000 in the form of a Distributive Award, there would not be any taxes on that amount. So, in this rather basic example, it would make more financial sense to forgo the retirement money and substitute in its place the equity from the marital residence.
There are a number of possibilities that are discussed when couples participate in mediation and are guided by a skillful mediator.