Litigants may initially forget to consider the division of pension or retirement funds when beginning to negotiate the terms of any settlement agreement, as these funds may have been accruing quietly during the marriage. It is important to think about such distributions early in the negotiation process to avoid upsetting delicate negotiations and causing the parties to go back to the drawing board.
Assets sequestered for retirement purposes by either spouse during the marriage or in contemplation of marriage are subject to equitable distribution similar to any other marital asset. These retirement assets can be used creatively to help negotiate a settlement plan. The versatility of retirement funds is enhanced by the fact that these monies are generally tax deferred and have the potential to grow exponentially if managed well. The potential growth of these funds may be offset by the need of one party for readily available, non-taxable liquid funds.
A dollar in hand today has a greater value than a dollar that will be in hand in ten years. The accounting adjustment is known as “present value” or “the time value of money”. Tax implications stemming from distribution of a retirment account must be analyzed. Accordingly, it is necessary for adjustments to be made in offsetting assets distributed. Some of the above discussion is foreign terroritory for the spouse who is not financially sophisticated. It is therefore important for that spouse to consult carefully with his/her attorney/accountant/financial planner prior to agreeing to offset different types of assets.