chitown said:
It is not true that employee stock ownership plans are NOT retirement plans. ESOP's of this type are covered under ERISA and IRC Sec 401 which states for retirement plans including 401(k) 403(b) ESOP's (and others) that distributions prior to age 59.5 are subject to a 10% penalty (hardship rules apply to eliminate if applicable). plans may be rolled over into an IRA or another employer plan, etc. Upon reaching age 59.5 or 70.5 distributions received are reported as ORDINARY income. Employee stock OPTION plans are not retirement plans and are governed by the SEC vs ERISA.
If I was being vague I apologize. The agreement with regards to division of IRA's, 401(k)'s 403(b)'s and employee stock ownership plans of the two parties is as follows: each parties plan is to be valued as of 6-30-04. Spouses ESOP plan is to be valued at same date but reduced by a phantom capital gains rate of 15 percent. The combined value of each parties assets will then be compared with a calculation made to equalize the respective totals to 50-50.
So the end result is that the agreement has a provision that tax effects only one retirement asset (even though it is in the same basket that includes it and other plans) at a capital gains tax rate that would never apply to the asset. Further, if person claimed distribution from this plan as subject to capital gains they would be in violation of the USTC.
Is this enforceable?
Ok....lets try this again
An IRA, 401k, 403b etc. can be divided by a QDRO. A division via QDRO is not a taxable event. Both parties are free to leave the funds alone or roll over the funds into another plan.
An ESOP or an employee stock purchase plan cannot be divided without exercising the options or selling the stock. Therefore, you have a taxable event.
The reason why I sincerely doubt that the employee stock purchase plan is a retirement account is due to the 15%. Any CPA is unlikely to have 15% as their marginal tax rate, and since cashing in a retirement account would result in 1099 R earnings, it would be taxable at the TP's marginal tax rate. However, if it is not a retirement account, it would result in 1099 B earnings, which are properly reported on Schedule D as capital transactions.
In any event, I can see no way that this transaction violates any provision of the tax code....whether its a retirement account or not. You are merely being asked to absorb the tax expense on your portion of the plan.