What Is Equitable Distribution?

If you are getting divorced and you have any type of marital property, you will need to undergo the process known as equitable distribution. What is equitable distribution, you ask? It is really just a fancy name for dividing up any property that you and your soon to be ex-spouse acquired during your marriage. That includes houses, cars, bank accounts, pension and retirement plans and many other items. Some people think that if they bought something during the marriage and it was in their name only (instead of joint names), that it is not joint property. Not true. If you bought it during the marriage, it is joint marital property regardless of how it is titled. That’s the law in Pennsylvania; however, other states have different definitions and laws.

The property that is going to be divided is usually valued at the date of separation (DOS). The DOS gives the court and any property appraisers, a date certain in which to put a value on that piece of property. The items valued at DOS could be your retirement plan, your car, or your bank account, among others. Other items may be valued more currently, for instance the marital residence. The house where you lived together is usually valued currently. If your divorce takes a long time to complete, you may have to submit several appraisals of the marital residence along the way, as the court likes to see an appraisal within the last six (6) months.

Your retirement plan(s) may need to be valued and you may need to prepare a qualified domestic relations order (QDRO). A QDRO is usually prepared by an actuary who works with your employer’s plan administrators to figure out the current value, future value and/or current value of a future income stream. These are complicated financial calculations. The valuation of your plan is one cost and the preparation of the QDRO is an additional cost. Once the QDRO is approved by your employer’s plan administrators, it can then be signed by both parties and submitted to the Judge for approval. It is possible that you may be able to avoid hiring an actuary to value your plan if you decide that you’re just going to split the amount 50/50. You may still need the actuary to prepare the QDRO to tell the plan administrator how to divide the funds. It is possible that your retirement plan(s) do not require a QDRO and all you need to do is “rollover” some of the funds into a separate account for your ex-spouse.

Please make sure you talk to a CPA about avoiding taxes or fees on your rollover. Or, you may decide to give your spouse a different asset instead of his/her equity in the retirement account, and you can avoid worrying about dividing up an asset.

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