Retirement issues--ex furious about final decree

[Ohiogal]

If she disclosed it, and it was included in the property settlement calculations, then it really wouldn't be a problem....at least in this particular instance. Apparently his retirement account was higher than hers, so the disclosure would have guaranteed a fair division of the difference between the two accounts.

Well she doesn't seem to know about his retirement and how much it was. She says he should have been about $20k but is not sure. He is saying that hers was that much and she is denying it. Because she spent it.

Yes, if hers was significantly higher than his, therefore she would have owed him money, and there were no other assets from which to recoup that money....then it could be a huge problem that she spent it.

Well facts are a bit short here.

People are allowed to use assets to support themselves pending a finalization of a divorce. Basic support isn't dissipating assets. However, assets should not be used even for basic support unless they are disclosed, and unless there are other assets available to ensure that the other party still receives their fair share of the total assets.

Correct HOWEVER some states (Ohio is one) prohibit any retirement funds from being touched during the pendency of a divorce without permission from the court. Which is why I gave the information I did.

Example: The marital assets are two retirement accounts and a house. One retirement account has 100k, the other has 50k and the house has 100k in equity. Each party is entitled to 125k in the end. The party with the 50k account uses their retirement account for basic support and to pay their attorney. (and the irs) That doesn't change the marital assets to 200k total instead of 250k. They remain at 250k. Therefore in the end, one party walks away with 75k, and the other walks away with 125k...because the first party already spent some of their share.

Right. I agree.

Alternate example: The marital assets are two cars of roughly the same value, a retirement account worth 15k, and some household furnishings. One of the parties spends the retirement account. HUGE problem. That person can expect to lose their car and their share of the household furnishings....and maybe STILL owe money to the other party.

Correct.

PS: I know you know all of this better than me. I posted it for anyone else who may read this thread in the future.

I agree and concur. But she really needs to talk to an attorney because there were issues back then. BIG TIME.

 

[mistoffolees]

Example: The marital assets are two retirement accounts and a house. One retirement account has 100k, the other has 50k and the house has 100k in equity. Each party is entitled to 125k in the end. The party with the 50k account uses their retirement account for basic support and to pay their attorney. (and the irs) That doesn't change the marital assets to 200k total instead of 250k. They remain at 250k. Therefore in the end, one party walks away with 75k, and the other walks away with 125k...because the first party already spent some of their share.

I think you've oversimplified. Retirement accounts can not be lumped in with hard assets because you've already paid taxes on the money you use to buy a house. Retirement accounts are often pre-tax. Therefore, $50K in a retirement account is worth less than $50 K in cash - because you have to pay taxes when you withdraw the retirement money.

In my case, all pre-tax assets were equalized and then all 'after tax' assets were equalized separately. I believe this is almost universal. You could presumably also do it by correcting the value of pre-tax assets by estimating taxes, but that is more difficult.

However, I believe your answer is correct, but it is generally not meaningful to just give a total. It makes more sense to give two totals - pre tax and after tax.

 

[LdiJ]

I think you've oversimplified. Retirement accounts can not be lumped in with hard assets because you've already paid taxes on the money you use to buy a house. Retirement accounts are often pre-tax. Therefore, $50K in a retirement account is worth less than $50 K in cash - because you have to pay taxes when you withdraw the retirement money.

In my case, all pre-tax assets were equalized and then all 'after tax' assets were equalized separately. I believe this is almost universal. You could presumably also do it by correcting the value of pre-tax assets by estimating taxes, but that is more difficult.

However, I believe your answer is correct, but it is generally not meaningful to just give a total. It makes more sense to give two totals - pre tax and after tax.

If the retirement account is not going to be split, or rather is going to offset other assets (such as the house) I can see your point, but I disagree with it. For very specific reasons.

Retirement accounts are split via a QDRO and the person on the receiving end can opt to leave the money in a retirement account of their own. Therefore, each person deals with the taxes on their "share".

Its also QUITE possible that if the money is used as its intended, for retirement purposes, that one or both of the parties will never have to pay any actual tax on the money.

At this time (and who knows what the numbers will be in the future) if 1/2 of a single person's social security, plus any other income (including retirement distributions) is 25k or less, there is no tax on Social Security. Therefore if the retirement distribution (plus other income) is less than the total of their deductions and exemptions, they would pay no tax at all...let alone any tax on the retirement distribution.

Its also impossible to predict, with any real accuracy, what tax bracket someone will be in when they retire. Therefore there is no accurate method to take the taxes into consideration.

The only time that I can see tax taken into consideration, is if someone is receiving an actual payout from a retirement account in exchange for other assets (such as the home equity). However, even then I think that the payer should have to deal with the taxes on that, because they are electing to use retirement money to make the payout, rather than refinancing for enough to pay off the other party.

 

[awake1]

thank you

Thanks to everyone for your advice. I can't remember the name of the KY Supreme Court case (2005 or 2006) I looked it up back in 2006. But the court found that KY Teacher Retirement System funds are not considered marital property and are not to be considered in a divorce. My attorney and I discussed this at length and I understood the reasoning that my husband has Social Security in addition to his 401K and IRA. I had only the KTRS. We are only talking about 14K here on my part. I really have no idea how much he has/had but my guess is slightly more, maybe 15k to 20K. If it matters, I used the funds to save our home...after taxes and penalties, seems like it was only around 8K.

I filled out a finanacial statement in 2005 and did so accurately. My ex NEVER did one. He never did anything the court asked him. That is one reason why the judge has found for me on every issue. Our court has been very lenient though. He has been in contempt since December and nothing has been done.

No one asked me to re-do a financial statement. My ex never did one. He submitted that he had 3K in his 401 K. I don't remember the exact amount but he had around 10K when we were married and that was just his 401K. The court never asked me if I had withdrawn my retirement funds. If they had, I would have told them.

 

[LdiJ]

Thanks to everyone for your advice. I can't remember the name of the KY Supreme Court case (2005 or 2006) I looked it up back in 2006. But the court found that KY Teacher Retirement System funds are not considered marital property and are not to be considered in a divorce. My attorney and I discussed this at length and I understood the reasoning that my husband has Social Security in addition to his 401K and IRA. I had only the KTRS. We are only talking about 14K here on my part. I really have no idea how much he has/had but my guess is slightly more, maybe 15k to 20K. If it matters, I used the funds to save our home...after taxes and penalties, seems like it was only around 8K.

I filled out a finanacial statement in 2005 and did so accurately. My ex NEVER did one. He never did anything the court asked him. That is one reason why the judge has found for me on every issue. Our court has been very lenient though. He has been in contempt since December and nothing has been done.

No one asked me to re-do a financial statement. My ex never did one. He submitted that he had 3K in his 401 K. I don't remember the exact amount but he had around 10K when we were married and that was just his 401K. The court never asked me if I had withdrawn my retirement funds. If they had, I would have told them.

If its true that you aren't paying into social security, then I agree that your retirement funds are not marital funds. Also, even if they had been marital, withdrawing them to save the marital home is a valid reason...because it preserved another marital asset and protected your ex's credit as well as your own.

 

[mistoffolees]

If its true that you aren't paying into social security, then I agree that your retirement funds are not marital funds. Also, even if they had been marital, withdrawing them to save the marital home is a valid reason...because it preserved another marital asset and protected your ex's credit as well as your own.

Not if, as someone else has pointed out, their state law requires court approval to touch a retirement account.

 

[LdiJ]

Not if, as someone else has pointed out, their state law requires court approval to touch a retirement account.

Yes, but a court would definitely approve a withdrawal from a retirement account to save a marital home....and probably wouldn't even squawk about it after the fact. Nevertheless, anyone reading this thread in the future, should get court approval for something like that, if their state requires it.

 

[nextwife]

I think you've oversimplified. Retirement accounts can not be lumped in with hard assets because you've already paid taxes on the money you use to buy a house. Retirement accounts are often pre-tax. Therefore, $50K in a retirement account is worth less than $50 K in cash - because you have to pay taxes when you withdraw the retirement money.

In my case, all pre-tax assets were equalized and then all 'after tax' assets were equalized separately. I believe this is almost universal. You could presumably also do it by correcting the value of pre-tax assets by estimating taxes, but that is more difficult.

However, I believe your answer is correct, but it is generally not meaningful to just give a total. It makes more sense to give two totals - pre tax and after tax.

As share values fluctuate almost daily, and have certainly tanked in many sectors, it seems to make sense to look at number of shares held in each fund (rather than the merely the ever-changing dollar value), and divide those by transferring the other parties their proportionate shares in each holding. That way, they can do with it as they wish, as to reallocating, once they are the owner. I know my 401K is worth maybe 10% less than last year at this time, and I sure hate to sell when the market is down - even if it is staying within the 401K. If I were dividing my account today by VALUE last year, rather than shares, for example, my spouse would end up with a greater than 50% total number of shares to achieve the dollars of early at the current depreciated value.

 

[mistoffolees]

As share values fluctuate almost daily, and have certainly tanked in many sectors, it seems to make sense to look at number of shares held in each fund (rather than the merely the ever-changing dollar value), and divide those by transferring the other parties their proportionate shares in each holding. That way, they can do with it as they wish, as to reallocating, once they are the owner. I know my 401K is worth maybe 10% less than last year at this time, and I sure hate to sell when the market is down - even if it is staying within the 401K. If I were dividing my account today by VALUE last year, rather than shares, for example, my spouse would end up with a greater than 50% total number of shares to achieve the dollars of early at the current depreciated value.

While it might seem that way, that ends up creating far more work and expense. Let's say you have two different retirement funds, one worth $120 K and one worth $110 K. If you do it your way, you have to transfer half of one fund to the other and vice versa - creating smaller holdings and increasing transaction costs significantly (essentially doubling transaction costs in the end).

Currency was invented for a reason. It allows the value of non-equal items to be compared. The correct way to do it is to set the price on the date of the divorce via QDRO and then transfer enough money to equalize. This only becomes a problem if you fail to convert the stock into a cash equivalent on the day its value is defined or if you take forever to do the transfer. If you do it right and don't delay, it comes out just right.

Let's take your method to the extreme. Instead of assigning a value to the house and the car and so on, I think each party should get half the house and half the car. After all, the car is a depreciating asset and the house is (at least in the long run) an appreciating asset. By your logic, you can't use the value of the house to offset the value of the car.