Marital Portion of 401k when no contributions

[bd420]

What is the name of your state (only U.S. law)MI

I've finished reading a couple of good and interesting threads from March on 401k's getting distributed when there are significant yearly contributions being made by the spouse, yet the account has lost money during this economic downturn.

What happens when you don't make any contribution to your pre-existing 401k during the marriage and you gain/lose money?

Ex1: 401k balance at time of marriage is 80k, and at the time of separation it's 100k.

Ex2: 401k balance at time of marriage is 80k, and at the time of separation it's 40k.

In both cases, no money was contributed to the plan by the spouse. Let's assume that in either example, the spouse's work could have contributed, so there are actually both these examples times 2 (Work didn't contribute..Work did contribute). I'm not sure work contributing would have any relevancy, actually quite certain it doesn't, but I thought it would make things clearer for others who might need this type of info as well.

A last example where the spouse does contribute 20k to a pre-existing 401k during the time frame of the marriage.

Ex3: 401k balance at time of marriage is 200k, and at the time of separation it's 440k. As stated, 20k was contributed.

Thanks.What is the name of your state (only U.S. law)?

 

[TinkerBelleLuvr]

No marital funds were ever used for 401K contributions?

 

[bd420]

Tinker, yes that is correct, in these examples no marital contributions were used.

Say you were at an employer that contributed 10% of your salary regardless if you contribute any money. Then say you wish to opt out of contributing any of your money because you know the equity market is bad, and there are no selections available to you within your company plan to take advantage of rising treasury yields, like TBT does as an ETF.

So you decide to contribute to TBT outside of your 401k account, knowing that those proceeds are certainly subject to marital proceeds, but the 401k in the examples have had ZERO marital contributions, just employer potentially.

 

[Bali Hai]

Tinker, yes that is correct, in these examples no marital contributions were used.

Say you were at an employer that contributed 10% of your salary regardless if you contribute any money. Then say you wish to opt out of contributing any of your money because you know the equity market is bad, and there are no selections available to you within your company plan to take advantage of rising treasury yields, like TBT does as an ETF.

So you decide to contribute to TBT outside of your 401k account, knowing that those proceeds are certainly subject to marital proceeds, but the 401k in the examples have had ZERO marital contributions, just employer potentially.

Am I understanding you to say that employer contributions to your 401k are not marital contributions?

 

[bd420]

Bali, I think I see where you are going with your question, and it's an excellent point.

Let me elaborate...

Despite the fact the contributions are coming from the employer, they are most likely considered and employee 'benefit', ie, if you actually saw the breakdown of your salary PLUS benefits, you could very well see this contribution within that along with health, short-term life, etc.

It would therefore seem there is a great argument for saying that employer contributions without employee contributions should count towards the marital contributions of the 401k.

To muddy the waters...is it 'possible' to opt out of the employee contribution? If so, this would futher support the arugument. If not (would that even be legal?), then I can see the side that would say this is not a marital contribution..I would prefer the money in my check, and if we decided to spend it on frivolous items vs savings, etc, that's our decision as well.

Here's an excerpt from family-law on this topic:

Employee v. Employee Funding

An employee pension can be nominally funded entirely by employee contributions, entirely by employer contributions or by a mix of the two. The word "nominally" is used because the pension is actually funded by the employee although the employee or employer is called the "payor."

The nominal source of the funding is important only in those states that recognize pension plans only to the extent that they are presently reducible to cash value. Under some plans, an employee who leaves his employment before retirement is only entitled to withdraw his contributions plus interest. Only his contributions are presently reducible to cash value and can be considered as marital property.

 

[Bali Hai]

Bali, I think I see where you are going with your question, and it's an excellent point.

Let me elaborate...

Despite the fact the contributions are coming from the employer, they are most likely considered and employee 'benefit', ie, if you actually saw the breakdown of your salary PLUS benefits, you could very well see this contribution within that along with health, short-term life, etc.

It would therefore seem there is a great argument for saying that employer contributions without employee contributions should count towards the marital contributions of the 401k.

To muddy the waters...is it 'possible' to opt out of the employee contribution? If so, this would futher support the arugument. If not (would that even be legal?), then I can see the side that would say this is not a marital contribution..I would prefer the money in my check, and if we decided to spend it on frivolous items vs savings, etc, that's our decision as well.

Here's an excerpt from family-law on this topic:

Employee v. Employee Funding

An employee pension can be nominally funded entirely by employee contributions, entirely by employer contributions or by a mix of the two. The word "nominally" is used because the pension is actually funded by the employee although the employee or employer is called the "payor."

The nominal source of the funding is important only in those states that recognize pension plans only to the extent that they are presently reducible to cash value. Under some plans, an employee who leaves his employment before retirement is only entitled to withdraw his contributions plus interest. Only his contributions are presently reducible to cash value and can be considered as marital property.

If 20k was contributed during the marriage to your 401k from employer paid benefits, you would be paying me 10k plus earnings on the 10k when we divorced period.

 

[Silverplum]

So, what class is this for?

 

[mistoffolees]

Bali, I think I see where you are going with your question, and it's an excellent point.

Let me elaborate...

Despite the fact the contributions are coming from the employer, they are most likely considered and employee 'benefit', ie, if you actually saw the breakdown of your salary PLUS benefits, you could very well see this contribution within that along with health, short-term life, etc.

It would therefore seem there is a great argument for saying that employer contributions without employee contributions should count towards the marital contributions of the 401k.

To muddy the waters...is it 'possible' to opt out of the employee contribution? If so, this would futher support the arugument. If not (would that even be legal?), then I can see the side that would say this is not a marital contribution..I would prefer the money in my check, and if we decided to spend it on frivolous items vs savings, etc, that's our decision as well.

Here's an excerpt from family-law on this topic:

Employee v. Employee Funding

An employee pension can be nominally funded entirely by employee contributions, entirely by employer contributions or by a mix of the two. The word "nominally" is used because the pension is actually funded by the employee although the employee or employer is called the "payor."

The nominal source of the funding is important only in those states that recognize pension plans only to the extent that they are presently reducible to cash value. Under some plans, an employee who leaves his employment before retirement is only entitled to withdraw his contributions plus interest. Only his contributions are presently reducible to cash value and can be considered as marital property.

Bottom line is that it is an employee benefit and is therefore marital.

 

[bd420]

I agree, marital contribution, has to be divided.

What about the case where the account is frozen or the employee doesn't contribute and neither does the employer, yet the account rises significantly during the marital years?

 

[nextwife]

Now, were we speaking of a PRE-marital 401K to which no contributions were made during the marriage, the story would be different. I, for example, had two prior employers through whom I had 401K accounts, neither of which have had a penny contributed by either myself or the employer during my marriage. Those accounts would not be marital, as they were always seperate and never comingled.