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Not all retirement plans are treated equally in Minnesota divorces

The language of the law can be confusing and convoluted, especially taking into consideration the varying approaches of the courts in Minnesota. Add on the fact that certain issues can be addressed in a number of different ways depending upon a multitude of factors and there’s no wonder why you have a headache.

This is especially true with regard to divorce and the division of property. In the case of retirement accounts, this confusion can lead to one or both parties not receiving their fair shake of the property settlement.

Minnesota requires that there be a “fair and equitable” division of the property acquired during the marriage. While there is no requirement that this be an equal division, it usually is. What this means is that everything, including retirement assets, is up for division. As you approach the division of retirement assets, it is important to remember that not all retirement accounts are treated equally.

Some retirement accounts, such as Individual Retirement Accounts (IRAs) and Annuities can be divided similar to an ordinary bank account. This process is known as a “transfer incident to divorce.” Pre-tax retirement accounts must be handled delicately in order to ensure that no tax is assessed on the award and when there are tax implications in the horizon, it is important to ensure that these implications are addressed appropriately.

Different rules apply to the division of qualified plans, such as Pensions, 401(k)s, and 403(b)s, however. These plans require the execution of what is known as a Qualified Domestic Relations Order (QDRO) in order to effectuate their division. While the divorce Decree sets forth the division of these retirement assets, the purpose of the QDRO is to make that division happen. QDROs must be drafted in accordance with the requirements of the Plan Administrator of the retirement asset, filed with the Court, and served upon the Plan Administrator in order to ensure that the division actually occurs. If these steps are not followed, the award anticipated by the parties cannot be carried out.

Additional rules and regulations apply to the division of military and government retirement assets. Sometimes parties will decide to forego the confusion associated with the division of their retirement plans and shift other assets around in order to make up for the difference. While many retirement plans have quantifiable values, the only way to get an accurate assessment of a pension’s value is to have an actuary perform a present date valuation. Even so, there are many factors that go into these valuations that may result in different valuations, such as cost of living adjustments and assumptions relating to the participant’s continued employment with the company.

Because of the inherent complexity of valuing and dividing retirement accounts, it is important to consult with an attorney familiar with the intricacies of property division in order to ensure that all requirements are met and that the intended division is carried through.

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