Retirement plans generally fall into one of two broad categories: defined contribution plans such a as a 401(k), IRA, SEP IRA, profit sharing plan, and defined benefit plans usually, pensions.
A defined contribution plan can be treated essentially as a pile of dollars, with a specific number of dollars or a percentage assigned to the alternate payee, to be distributed as soon as the alternate payee wishes. It is usually transferred as a lump sum. The value of these plans is reflected on the employee's current plan statement. An actuary is not used for the valuation.
In contrast, a defined benefit plan is usually a promise to pay income -- commonly, a percentage of pre-retirement income -- to the participant when he satisfies the age and service requirements. It is usually payable in the form of a monthly benefit, not as a lump sum. This type of plan is valued by an actuary who calculates the present value of the future stream of payments using various assumptions and tables.
Retirement plans are usually treated as marital property to be divided, even when the asset being transferred will be paid as a stream of income rather than a lump sum.
While divided pensions usually produce a stream of eventual income, Massachusetts courts generally treat them as marital assets to be divided as part of the marital estate like defined contribution plans. However, courts occasionally treat the stream of income generated as income rather than as property.
While many Americans eagerly anticipate receiving Social Security benefits as part of their post-retirement income, Social Security benefits are not "property" and cannot be divided as part of the marital estate but can be included in "stream of income" calculations.
Should you be in the midst of a divorce or contemplating divorce, contact an experienced attorney to guide you through the nuances of dividing retirement benefits in a Massachusetts divorce.
Contact the Law Offices of Renee Lazar by calling 978-844-4095 to schedule a FREE one hour no obligation consultation.