Employee benefits may be one of the biggest assets involved in a divorce—often similar in value to the family residence. With so much money on the line, identifying, valuing, and dividing benefit plans is a priority. Here are 5 steps you should take whenever employee benefits may be involved in a separation or divorce.
When dividing employee benefits—particularly pension and retirement benefits—in a dissolution or legal separation you’ll need to
- gather information about the plan in general and the employee’s benefits in particular,
- analyze the facts and circumstances on a quantitative and qualitative level, and then
- make a decision on how best to divide the particular benefit (considering the relevant tax consequences).
Here are 5 steps to take in every separation or divorce case involving employee benefits:
- Start right away. Make clear to your client as soon as the topic of valuing and dividing community assets is broached that you need to get all pertinent information about the parties’ employee benefits and other forms of deferred compensation. Initial inquiries about the parties’ employment-related benefits can’t be made too soon; it’s best to introduce the subject at the very first client interview.
- Accurately disclose every plan. When you represent a participant in an employee benefit plan, i.e., an employee spouse, it’s crucial to identify and accurately disclose every plan having a community component; failure to do so risks a later set-aside of the judgment. See Marriage of Brewer & Federici (2001) 93 CA4th 1334, 1344. There’s also the risk monetary sanctions if the failure to accurately disclose plan information is found to be a breach of fiduciary duty. Marriage of Feldman (2007) 153 CA4th 1470, 1477.
- Identify all plans. When representing a nonemployee spouse, you’ll need to figure out very early in the process the number and nature of the other party’s benefit plans, because not securing appropriate court orders on the benefits can risk compromising or losing them. See Fam C §2610(a).
- Get an explicit order. Obtain a complete and explicit order on the benefits before or at the same time as the dissolution judgment whenever possible. Because of the complexity of determining how many plans are at issue, what type of plans they are, and how to obtain the required information, start discovery—whether informal or formal—at the same time as filing the dissolution petition.
- Give written notice to the plan. Although automatic temporary restraining orders (ATROs) listed on the back of the family law summons prohibit both parties from transferring property (Fam C §2040), you should give each plan written notice of the pending dissolution action (see Fam C §755(b)) to prevent one party from unilaterally diminishing the value of any benefit.
Get more practical advice on case assessment and planning in CEB’s Dividing Pensions and Other Employee Benefits in California Divorces, chapter 1. Also check out CEB’s program Financial Discovery in Family Law Cases, available On Demand.
Other CEBblog™ posts you may find useful:
- When Financial Discovery Gets Complicated
- In the Divorce Wars, Who Pays the Attorney Fees?
- Protecting Privacy During Divorce
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Filed under: Divorce Law, Family Law, Legal Topics | Tagged: 401k plans, community property, defined benefit plans, division of assets, divorce, employee benefits, legal separation, pension plans, retirement benefits |