Retirement accounts are considered community property in New Mexico. That means that any retirement funds accumulated during the marriage belong equally to each party. In turn, this means the accounts must be divided equally when a marriage is dissolved.
There are two categories of retirement plans: 1) defined contribution, and 2) defined benefit. A defined contribution plan is one in which an employee deposits contributions into the account and owns the contributions and earnings. Some employers will also make contributions that belong to the employee. These plans are commonly referred to as Individual Retirement Accounts. The money in these plans accumulates as time goes on, usually invested in various stock market instruments such as stocks, bonds, and mutual funds.
A defined benefit plan is one in which an employee contributes into the plan and is promised a monthly benefit at retirement that lasts either for their lifetime or some specific period. Normally, in these plans, the money contributed by the employee remains his money, but the accumulation on that money belongs to the plan.
Defined contribution plan assets are typically pretty easy to divide. An exact account value can be determined as of a date certain, such as the date of separation of the parties. Any value attributable to contributions made before the marriage belongs only to the owning party. The non-owning spouse is entitled only to half of what was accumulated during the marriage. This requires obtaining detailed information from the account manager and can go back quite some time if the marriage has been long-standing.
Defined benefit plans can be much more difficult to divide. A current value of the plan benefits must be established, which must be based on assumptions. A plan can report how much the employee has contributed, but not how much the benefit is ultimately worth. This is because benefits are not paid until the benefit owner actually retires, and depends further on how long the owner lives. In addition, there are variables of the benefit that the owner can choose at retirement that affects the benefit amount.
If the parties want to be completely disentangled after their dissolution, the best approach to dividing a defined benefit plan is to have an actuary analyze the plan provisions and determine a current value that is based on an assumed retirement date and life expectancy. In this way, an amount of benefits to be paid out can be calculated and split according to each party’s interest. Remember the non-owner’s interest is only proportionate to the length of the marriage. The owner can then either pay the amount due to the spouse, or offset it with other assets, including the value of the spouse’s own retirement account. The owner’s retirement plan remains intact.
If a current value buyout is not agreed to or ordered, then the non-owning spouse waits until the owning spouse actually retires to collect benefits. Under this scenario, the plan has a scheme by which it calculates the non-owner’s percentage of interest, according to the length of the marriage, and when the owner finally retires, begins paying each party their share of the benefit.
Whether the plan is defined contribution or benefit, the court will ultimately issue a Qualified Domestic Relations Order that instructs the plan manager or administrator, as the case may be, as to the distribution of assets. In the case of defined benefit, the plan administrator has the most say over the QDRO because it must comport with the plan’s benefit structure.
Regardless of the plan type, an actuary should be engaged to assign appropriate values to the retirement assets.
An experienced New Mexico family lawyer can help you understand the complications of retirement asset division in a divorce. If you have questions about how marital property will be treated in a divorce proceeding, contact the Lightning Legal Group. We understand the typically acrimonious nature of proceedings, and we’ll help you find your way. Contact us today at (505) 247-2390 for experienced legal advice.