How is a defined contribution plan valued for division in a divorce?
The value of a defined contribution plan is the total account balance maintained for an individual under the Plan as of any given date. Certainly the manner in which such an account is viewed as property will depend upon the property model followed in your state. Depending upon the property model followed, the entire account balance could be subject to division or, depending upon the circumstances of the employee’s participation, only part of such account could be subject to division.
If an individual began participating in the defined contribution plan prior to marriage, the entire account balance maintained by the plan on his/her behalf may not be considered marital property. In this case it is the job of the appraiser to determine what part of such account balance is attributed to the period of marriage and which should remain the sole property of the employee.
Pension Appraisers, Inc. offers three methods of determing the portion of a defined contribution plan which accumulated during the period of marriage. It is important to remember that determining such a value is not always an exact science. The value of these accounts can change on a daily basis and some individuals may have participated in such plans for many years. Following is a brief explanation of the three methods:
Segregation Method: The account balance on the Date of Marriage, plus all interest and investment growth attributable to these monies is subtracted from the account balance on the Date the Marriage Ended/Cut-Off Date. The difference is the value of the account subject to division. This approach assumes that any growth in pre-marital account balance which occurred during the marriage is considered separate property. Most Dual Property Model states view this growth as separate property. However, this is not true for all Dual Property Model states, and should be researched before using this method.
Subtraction Method: The account balance as of the Date of Marriage is subtracted from the account balance as of the Date the Marriage Ended/Cut-Off Date. The difference in the account balances is the value of the account subject to division. This approach assumes that any growth in the pre-marital account balance which accumulated during the marriage is considered marital property. Only a few Dual Property Model states view this growth as marital property.
Coverture Method: The account balance as of the Date Marriage Ended/Cut-Off Date is multiplied by a coverture fraction to determine the value of the account for equitable distribution.