Navigating a high net worth divorce presents a unique set of challenges, including the division of substantial retirement accounts. These assets, such as 401(k)s, IRAs, and pension plans, often represent a significant portion of marital wealth and demand careful consideration due to their complex tax implications and potential future value.

This article explains the complexities of valuing and dividing retirement accounts in high net worth divorces. This guide, in addition to the help of a trusted divorce lawyer, will provide clarity and insight into the process.

Summary

1. Valuing Retirement Accounts
2. Factors Affecting Valuation
3. Dividing Retirement Accounts
4. Types of Division
5. Protecting Your Retirement Accounts
6. Seeking Professional Guidance

1. Valuing Retirement Accounts

Valuing retirement accounts accurately is a critical aspect of high net worth divorces, primarily because these assets often represent a large portion of the couple’s wealth. An accurate valuation is not just about knowing the current balance in the account. It’s also about understanding the potential future value of these assets, considering factors like investment growth, interest rates, and the account holder’s retirement age.

2. Factors Affecting Valuation

Several factors play a crucial role in the valuation of retirement accounts. Beyond the current balance, future considerations like investment risk, inflation, and health-related expenses can greatly impact the value of these assets. Taxes also significantly affect the worth of these accounts as they are due when assets are withdrawn from some retirement plans.

Additionally, the real value of retirement accounts stems from not having to pay taxes on investment income and the opportunity for rebalancing. Furthermore, the size, value, and profitability of the investments within the account can also influence the overall value.

3. Dividing Retirement Accounts

The division of retirement accounts in high net worth divorces is a complex task, requiring careful navigation of legal implications. Retirement assets accrued during the marriage, such as IRAs and 401(k)s, are generally considered marital assets that can be divided.

This division can be achieved through a “transfer incident to divorce” or a Qualified Domestic Relations Order (QDRO). In some cases, ex-spouses might even be eligible for monthly benefits if the marriage lasted for at least ten years.

Additionally, high net worth individuals often have significant funds tied up in various financial investments, adding another layer of complexity to the division process. Therefore, seek expert advice from a divorce lawyer to ensure an equitable division.

4. Types of Division

Retirement accounts can be divided in various ways, including:

• Equal Split: This involves dividing the account balance equally between both parties. Most states adopt the “equitable division” rule, implying that the judge will divide a couple’s property based on what’s fair in their specific situation.
• Pro-Rata: This method considers the contributions made by each party during the marriage. In high net worth divorces, pro-rata division of retirement accounts can be a viable strategy to ensure an equitable split. This method involves dividing the retirement assets according to the proportion each party contributed or based on the length of the marriage during which the funds were accrued. For instance, if a 401(k) account was funded both before and during the marriage, a pro-rata split might allocate only a portion of that account to the marital estate.
• Set-off: In this approach, one spouse may keep the retirement account in exchange for other assets of equal value. However, it’s important to consider the tax implications and potential future value of each asset when negotiating a set-off.

Your divorce lawyer will know state laws and be able to inform you what options you have based on where you live. For instance, Wisconsin law states that 401(k)s acquired during the marriage must be divided through an equal split. You can learn more about Wisconsin law in the post “What Happens To Your 401(k) When You Divorce in Wisconsin.”

5. Protecting Your Retirement Accounts

During a high net worth divorce, both parties may have a vested interest in protecting their retirement accounts. There are several ways to safeguard these assets, such as:

• Prenuptial or Postnuptial Agreements: Prenuptial and postnuptial agreements provide a layer of protection for various types of retirement funds, including 401(k)s, IRAs, and employer-sponsored pensions. They can stipulate that each spouse retains 100% of their respective retirement assets, thereby protecting these assets from division during divorce.
• Trusts: Trusts can serve as valuable tools in protecting retirement accounts. A Retirement Plan Trust, for example, acts as a shield, insulating the principal of qualified retirement accounts such as an IRA or 401(k). By naming your trust as the beneficiary of your retirement accounts, you can control what happens to the funds after your passing.
• Negotiating: Effective negotiation can help ensure that the division of these assets is fair and equitable. One strategy might involve trading off other assets to retain more of your retirement accounts. For instance, you might agree to a lower share of the marital home in exchange for a higher percentage of your retirement savings.

6. Seeking Professional Guidance

Dividing retirement accounts in a high net worth divorce requires careful consideration and planning. By understanding the different types of accounts, valuing them accurately, and working with a qualified attorney, you can ensure that your retirement assets are protected and divided fairly.

At Ohiku Law, we have experience handling high net worth divorces and can provide you with the guidance you need during this challenging time. Our team of professional Milwaukee divorce attorneys has the expertise to help you navigate the legal complexities surrounding retirement accounts, ensuring that your interests are protected. Contact us today for a consultation and let us help you achieve a fair division of your retirement assets.

By Attorney Odalo Ohiku, Owner of Ohiku Law Office

Attorney Odalo Ohiku is a dedicated and experienced lawyer who focuses on divorce law, family law, and custody and placement for high-net-worth individuals in the Greater Milwaukee area. A trained mediator and arbitrator, Attorney Ohiku has the skill set, experience, and perspective to help clients safeguard their interests while minimizing the stress, anxiety, and conflict that can come with divorce. Attorney Ohiku’s credentials are exemplary: he has been honored as a “Top 40 under 40” by both The American Society of Legal Advocates and The National Trial Lawyers, served as Chair of the Wisconsin State Bar Board of Governors, and earned the President Award from the Wisconsin State Bar. He is passionate about his work in safeguarding families, ensuring that they can maintain the lives they have worked hard to build.