Considerations When Analyzing Retirement Assets

Laurie Dyke, Founding Partner at IAG Forensics and Valuation shares Considerations When Analyzing Retirement Assets.

Hi I’m Laurie Dyke the founding partner of IAG Forensics & Valuation. Welcome to another session of Behind The Numbers.

Today I’ll be talking about valuing retirement assets for a divorce. Technically there are two types of retirement assets that need to be valued for divorce. These are defined contribution plans or accounts and defined benefit plans. Individuals and sometimes employers contribute funds to define contribution plans or accounts and then the value changes with market forces. Examples of
employer-sponsored to fund contribution plans include 401k and 457 plans.

An example of an individual defined contribution account is an IRA. Valuation of a defined contribution account is relatively simple, determined by looking at a recent account statement. Defined benefit plans or plans such as pensions that promise to pay an amount to the recipient over time-often the person’s life beginning upon retirement. Estimating the value of a pension involves  determining the recipient’s life expectancy with reference to a mortality table and applying a discount rate to the expected future cash flow.

To determine an estimated present day value this process involves subjectivity by the evaluator in selecting the applicable mortality table and discount rate and the resulting valuation is always wrong. This is primarily because nobody ever lives exactly as long as mortality tables predict. Certain plans are qualified plans under the Internal Revenue code and are divisible by qualified Domestic Relations order or a Quadro or may be divisible by some other type of court order such as the military Domestic Relations order for military personnel.

IRAs are easily divided upon divorce using forms provided by the financial institution holding the account. Other plans or accounts may not be divisible at all in a divorce such as teacher or Municipal pensions and certain types of non-qualified executive compensation plans. Negotiating property Division and divorce that involves assets that cannot be divided and are not easily valued becomes tricky. For example how do you determine an appropriate trade of a 401k plan with teacher pension? Each retirement plan has details and nuances that cannot be covered here and the Internal Revenue code provides an opportunity for the recipient of a transfer of funds from a qualified plan to avoid early withdrawal penalties under certain circumstances.

I’ve attempted to provide an overview of Analyzing Retirement Assets but it’s important to consult competent legal and financial professionals to assist with divorce property division involving retirement assets. This is Lori Dyke with IAG Forensics & Valuation and this has been another session of Behind The Numbers.