Divorce has critically important financial implications for both individuals; one of these key issues concerns the division of property. Understanding how marital assets are divided requires knowledge of how property is classified and how its value is determined.
Marital assets are property acquired during the course of the marriage. Property could include, for example, cars, real estate, stock options and retirement plans; these can all be divided in cases of divorce. Marital assets are distinguished from non-marital “separate” property in that the latter are not acquired during the marriage; they are gained before the marriage, after the divorce or received through an inheritance or gift. Prenuptial or postnuptial agreements also establish separate property.
How retirement assets are classified
Retirement assets are classified according to the time of the plan’s creation:
- Retirement plans started prior to the marriage have both separate and marital assets; the marital component is only the value the asset gained during the marriage.
- Retirement plans started during the marriage are considered marital assets; these plans are typically fully divided in the case of divorce. However, when contributions were made after the separation, those contributions are treated separately from contributions made during the marriage.
- Retirement plans created after divorce are not classified as marital assets, and these are not subject to division.
How value is determined
The two main types of retirement plans are pension plans and defined contribution plans. With a pension fund, the participant gets the benefits after retirement, making it more challenging to determine the plan’s value. An actuary or pension evaluator may be hired, and may consider the following when determining the plan’s value:
- The employee spouse’s work length
- Age and life expectancy
Defined contribution plans, which include 401(k) plans, fall into two categories: plans created before the marriage, where the marital part is the value gained during the marriage (subject to division), and plans created during the marriage, for which any contributions made post-separation must be subtracted from the plan’s current value. Account statements let you easily check the plan’s value on specific dates.
How the court may divide assets
Pennsylvania is a state that divides marital assets and debts on the basis of “equitable distribution,” meaning the court aims for a fair distribution of assets, rather than what would necessarily be an equal distribution of assets. Factors the court may take into account when distributing assets include the marriage’s length, if one spouse has considerable non-marital assets and whether one spouse is awarded custody of the children.
Many factors go into determining how marital assets are divided. The attorneys at Miller, Kistler & Campbell can provide you with professional advice regarding property division and other financial matters. Contact their office today to schedule a consultation.