How Do Retirement Accounts Factor into a Divorce Settlement?

When a couple divorces in Utah, state law requires an equitable division of all marital property, which can include retirement accounts. It is important to remember that “equitable” is not necessarily the same thing as equal. The judge’s overall goal is a fair and reasonable split. If, for example, one spouse earns considerably less than the other, the lower-income spouse might be awarded a bigger percentage of marital assets.

Pension plans and retirement accounts fall into two primary categories:

  • Defined Contribution Plans: The employee and / or the employer contribute a set amount. 401(k)s, 403(b)s and profit sharing plans are all included in this category.
  • Defined Benefit Plans: With this type of company pension plan, an employee’s benefits are calculated according to the number of years with the company and the salary they earned at the time of retirement.

As a general rule, any funds paid into a retirement account or pension plan by either spouse from the date of the marriage to the date of the divorce is regarded as marital property. If both spouses have their own retirement accounts or pension plans, Utah courts tend to award each party their respective benefits. Even if only one person has such benefits, the general practice is to let them keep these funds and award the other spouse something of equal value, such as cash, home equity, or other property. If nothing of comparable value is available, the retirement benefits may have to be divided.

The Woodward Formula

In the 1982 landmark case Woodward vs. Woodward, the Utah Supreme Court created a specific formula for distributing pension plan funds accrued during a marriage, which includes:

  • Dividing the value of the retirement account in half
  • Multiplying it by the years of marriage
  • Dividing this total by the number of years the person worked

Using this formula, a retirement account worth $50,000 would have its value divided in half, to $25,000. If the marriage lasted 10 years, the $25,000 value is multiplied by 10 to reach a figure of $250,000. If the employed spouse worked for 20 years, that number would be divided to reach a final total to be awarded to the other party of $12,500.

This formula represents a starting point, and the final distribution may vary according to the following factors:

  • The date the couple separated
  • Whether or not the account holder withdrew funds to intentionally conceal assets from their spouse
  • Other factors considered by the court

Once the judge reaches a decision regarding how the pension funds are to be distributed, he or she will sign a Qualified Domestic Relations Order, or QDRO, which must then be approved by the pension plan administrator. At that point, the administrator will divide the funds according to the provisions of the QDRO.

If you are about to be divorced in Utah and have retirement accounts that are subject to equitable distribution, contact the Law Office of Arnold, Wadsworth & Coggins today. We will protect your rights and help you obtain the financial resources you need for the future.

Written by Arnold Wadsworth Coggins

Arnold, Wadsworth & Coggins Attorneys is a premier Utah law firm serving the Wasatch Front in the areas of family law, bankruptcy, criminal law, and civil litigation. Our attorneys provide clients with exceptional legal representation and personal attention. With over 35 years of trial practice and litigation experience, we bring big firm expertise at affordable rates