Q: Maybe my situation is unusual, but I can't seem to find evidence that my husband will understand. We’re getting a divorce in Georgia, where we were married and lived for 27 years. He still lives there. I now live in another state, but divorce will be handled in Georgia, an equitable distribution state.
I have several IRAs in my name that were set up by my father with his money during the early years of my marriage. Both my attorneys have told me these were gifts and are therefore outside the pool of marital property. My husband started several IRAs of his own in his name during our marriage. Are his IRAs considered marital property? Are they to be split fifty-fifty?
I also have a question about his defined benefit pension. Seventy-two percent of his work years were during our marriage. Assuming the coverture fraction is calculated correctly, am I therefore entitled to 36% of his pension? -- CB via email
A: I don't think you should spend a lot of energy trying to explain the situation to your soon-to-be ex-husband. That's his lawyer's job, not yours. But here's the basic rundown:
When a couple divorces, the law calls for a division of their marital assets. As a general rule, a marital asset is anything that was acquired during your marriage, no matter whose name it’s in. That includes the appreciation in your retirement plans. For example, if your 401(k) plan was worth $20,000 when you got married, and it's now worth $170,000, the $150,000 increase in its value is a marital asset – regardless of the fact that your 401(k) account is in your name and was funded only with money you earned. Your salary and the investment income it earns during your marriage are marital assets.
If your husband’s IRAs were funded with his salary during your marriage, they’re a marital asset even if the accounts are in his sole name.
But an account in your sole name is not a marital asset if it was funded entirely with a gift that was made solely to you, and you have never commingled it with money earned during your marriage. Those accounts are called ‘separate property’ and they’re off the table.
That’s why your lawyers have told you the IRAs your father set up for you aren’t subject to division: They were funded with non-marital assets -- i.e., your father's gift to you. And presumably, you made no additional contributions to these accounts during your marriage, so they've always been kept separate from marital money.
Clear so far?
Okay – let's talk about how the marital assets are divided.
In a community property state like California, the law says they’re to be divided fifty/fifty. In an equitable distribution state like George, the law says they’re divided equitably. Equitably means fairly. Who decides what's fair? The court does -- and its decision is based on factors like the duration of the marriage, and the respective marital contributions of both parties.
This doesn't mean that a one-income marriage results in a lopsided division of assets because -- as everyone who is married or ever has been married knows -- marital contributions aren't limited to income. Divorce courts also consider non-economic contributions, such as caring for the children and running the household.
As a general rule, when a marriage has lasted for a long time, equitable division of marital assets means equal division. (Bear in mind, however, that division of marital property is always subject to negotiation, provided the final settlement falls within the perameters laid down by the law.)
As for your last question, most equitable distribution states treat the portion of a defined benefit pension that was earned during a marriage as a marital asset. A ‘coverture’ calculation is what determines how big a chunk of the pension was earned during the marriage. If 72% of your husband’s pension is considered a marital asset, then yes -- an equal division of the marital pot could result in your getting 36% of his pension.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.