Retirement Funds in Oregon Divorce Mediation
What Is a Retirement Account?
Some people believe that a retirement account is limited to accounts that have "retirement" in the title. The truth is that any account whose primary purpose is to provide income in retirement years is a retirement account for purposes of divorce mediation. All such accounts are under that umbrella, no matter whether the account is funded by a private employer, a government agency, a nonprofit organization, or an individual.
Types of Retirement Accounts
There are numerous types of retirement accounts. You may be familiar with some of them, and you may own one or more retirement accounts. Each type of account is handled differently. Here are the most common ones that Matthew addresses in mediation:
Difference Among Retirement Accounts
The most important differences among different types of retirement accounts are the ownership and the tax effects. Most accounts can be divided or transferred, but a few cannot. Further, even though the vast majority of retirement accounts can be divided or transferred, the true valuation will be different from account to account depending on the tax-related factors that affect each type of account.
Ownership of a Retirement Account: Oregon's Presumption of Equal Contribution
Whether the retirement account was accrued because of employment at a private employer, a nonprofit organization, a governmental agency, or one's self-employment, it is always true that retirement accounts are titled in the name of the employee. That leads some people to believe that it is "his 401(k)" or "her IRA." However, that is not completely so. In a divorce in Oregon, and to some extent the same is true in every state, assets acquired during the marriage are presumed to have been acquired as a result of the equal contribution of the parties. With few exceptions, it holds true in every state, to some extent.
Rebutting the Presumption of Equal Contribution
Trying to rebut that presumption is a steep hill to climb even if you attempt to. However, one scenario that makes for an easy rebuttal is if the account was opened (or the employment at that employer began) before the marriage. The retirement benefits attributed to the premarital period are typically the separate property of the employee.
Why Retirement Accounts Matter in Divorce Mediation
Given that each person's right to an interest in the retirement accounts is usually not a matter of much dispute, why do we talk about retirement accounts so much in Oregon divorce mediation? There are many reasons, from tax-related concerns to the long-term impact of having more of one type of asset and less of another. The common issues that are discussed and resolved in mediation concerning retirement accounts are:
Valuation of Retirement Accounts
Valuation questions can relate to the premarital vs. marital portions of the balance, but it can also apply to the fact that almost all retirement accounts are pretax accounts, meaning that they are funded with employee and/or employer contributions that have not yet been taxed but will be taxed when withdrawn, presumably at retirement age. Equating a retirement account with a different type of asset that does not have deferred taxes that will be owed can create a skewed snapshot of the true value of the assets that each party will retain. Matthew knows the methods and considerations of the valuation of all types of assets, including the various forms of retirements funds.
Taxation of Retirement Accounts
The taxation of the funds based on the time and place of the distribution. Because retirement funds are meant to be used at retirement age, withdrawing them before retirement age defeats the purpose of making them a tax-advantaged investment. Regardless of when a pretax retirement account is distributed (meaning when funds are withdrawn), the amount distributed (withdrawn) will be subject to income taxes. For almost all states, including Oregon, that means federal income tax and state income tax. A few states, such as Washington and Nevada, have no state income tax. Your home state for tax purposes is based on the address that you report for the tax year. Also, early withdrawals are usually subject to an additional 10% penalty, but certain categories of retirement accounts have narrow exceptions for particular circumstances.
Rules of the Plan Administrator
Many retirement plans, be they public or private, have rules concerning the manner in which distributions can be taken. Usually, the outcome that the parties are seeking in mediation is achievable, even if there may be a few hoops to jump through. However, if the rules of the retirement plan preclude certain outcomes, there is nothing we can do in divorce mediation to rewrite those rules or compel the company to modify them. Sometimes, the scope of your options is narrowed by the stipulations of the employee or plan administrator.
Discovery for Retirement Accounts in Oregon Divorce Mediation
For all retirement accounts, Matthew will ask for documentation of the type of account, its balance, and its recent transaction history. The dates of certain transactions may make a difference in the valuation. Also, some people are mistaken about what type of account they have. Because each type of account is different, it's important to be sure about the particular type of account that you have. What makes sense for one type of account may be much less appropriate for a different type. Matthew can get the necessary information and ensure that the discussion focuses on the proper details.
How Mediator Matthew House Will Help You with Your Retirement Accounts
Because of his law degree, 20 years of experience, and specialized training as a Family Law Financial Analyst, Matthew has the necessary expertise to sort it out for you.