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Considerations in dividing retirement accounts in a divorce

Many Pennsylvania residents have some sort of retirement account through their employers, such as a 401(k). Not surprisingly, at least a portion of such an account may be considered marital property in the event of a divorce. Determining what portion of the account is actually considered divisible may not be as easy as a simple math problem.

For example, an employee's retirement account is valued at $50,000 on the day the couple was married and $250,000 at the time of the divorce. The portion of the account considered a marital asset may not automatically be $200,000. A difference exists between the amount of contributions made to the account during the marriage and the dividends that the initial $50,000 earned through investments during the marriage.

When a retirement account earns money through investments, the growth is considered to be passive. In the scenario above, it is possible that the initial $50,000 earned another $50,000 from market changes. That could mean that the marital portion of the asset may only be $150,000. The other spouse could then be entitled to $75,000 instead of $100,000.

When it comes to dividing retirement accounts in a Pennsylvania divorce, numerous issues need to be considered, such as in this example. Unless the party whose retirement account is being divided agrees to an equal split regardless of how much the account has increased in value, the other spouse may not be entitled to additional monies. It may be advisable to enlist the services of a financial consultant in order to obtain a proper valuation of the marital portion of the account.

Source: The Huffington Post, Three Costly Divorce Settlement Mistakes and How to Avoid Them, Christian Denmon, Jan. 21, 2014

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