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Dividing Benefits Earned During Marriage

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A couple married on September 7, 2007 and divorced on July 16, 2019. The plan is a cash balance plan with Koch Industries (Georgia Pacific). The Judgment of Divorce awards the Alternate payee 50% of the Participant’s vested account balance under the plan earned during the marraige. I drafted the QDRO according. The plan administrator denied preapproval of the QDRO, stating that a single valuation date is required. To be fair, the QDRO quidelines state as much. However, since this a common J of D provision, I have used the above language successly with other plan administrators. 

I have researched alternative formulas like: Value on date of divorce x months a participant while married/total months a participant x 50% = award to Alternate Payee. Does anyone have a better idea, especially if you have worked with Koch Industries?

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There a 4 options for accomplishing what you seek to determine. 

             (i) Determine the value of the account at the date of marriage and compute gains and losses to bring it forward to the date of divorce.  This will give you the non-marital portion.  The balance will be the marital portion.  It is sometimes not possible to find the records of the value at the date of divorce, and many Plan Administrators and most IRA custodians do not have the ability to bring these balances up to date for you.  Some Plans like TIAA-CREF and TSP have detailed historical records of the monthly changes in the value of their respective investment options.

        (ii) In a shorter term marriage, pull the tax returns and W-2s and determine the contributions made during the marriage and compute gains and losses to bring them forward to the date of divorce.  The same problems exist as are outlined in “(i)” above.

        (iii) Take the value of the account as of the date of marriage and use an average of, e.g. the Dow Jones Industrials, the NASDAQ, the S&P 500 and the Moody’s bond rate as of the date of marriage and as of the current date.  Apply the yearly percentage changes to the value at the date of marriage and the result is the non-marital share.  The balance is the marital portion.  The same approach can be taken with respect to the amounts contributed each year from the date of marriage to the date of divorce.

        (iv)   Use the (Maryland) - Bangs/Pleasant formula.  Multiply the account balance at the time of divorce by the coverture fraction where the numerator is the number of months during which the party made contributions to his/her IRA or 401(k) during the marriage, and the denominator is the total number of months during which the party made contributions to his/her IRA or 401(k) as of the date of divorce.  The result will be the marital portion to be divided.  This has been criticized as unreliable since: (i) it assumes equal contributions to the Plan during the entire period set forth in the denominator of the coverture fraction, and, (ii) it assumes equal  increases/decreases in value of the Plan assets during the entire period set forth in the denominator set forth in the coverture fraction; and, (iii) it fails to adjust for inflation/deflation from the date of marriage to the date of divorce; and, (iv) it assumes that the mix of investments remains the same.  But, it’s better than nothing.  And it better than, (i) concluding that premarital and post-marital contributions to the account resulted in a commingling of funds that renders the entire account as “marital”; or, (ii) that all post marital increases or decreases in value from the date of marriage forward should be disregarded.

So the problem is the assumption that "earned during the marriage" has a meaning and is easily capable of determining.  

To see the problems that can be created by using option (iv) to allocate defined contribution plan benefits, see Granger v.  Granger,  No. 20140196-CA, Court of Appeals of Utah (2016) that you can find at:
https://scholar.google.com/scholar_case?case=1223294215352864252&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt.  


    And see Dutille v.  Dutille, 52 Misc.3d 303, 28 N.Y.S.3d 813, 2016 NY Slip Op 26109 (2016) that you can find at - 
https://scholar.google.com/scholar_case?case=13824837295212223034&q=dutille&hl=en&as_sdt=4,21,33


    In a 2018 decision in Kabasan v. Kabasan  -
https://scholar.google.com/scholar_case?case=13034137486072388695&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt
the Court of Appeals of North Carolina held that the use of the coverture fraction formula by the trial court was not error when determining the marital portion of the husband’s TSP, an annuity, and an IRA.  


     And the recent Maryland case, Reynolds v. Reynolds, 216 Md. App. 205, 85 A. 3d 350 (2014), noteworthy in that it discusses the proof necessary to demonstrate the increase in the value of the non-marital share from the date of marriage to the date of divorce.

 See also a recent case from Virginia, Mann v. Mann at:
http://scholar.google.com/scholar_case?case=2795450834253640273&q="marital+portion"+401(k)+%2Bcommingled&hl=en&as_sdt=ffffffffffffe04   
The basis of this decision was that passive appreciation of non marital property is itself non marital.  

Bottom line is that you need to give the Plan a dollar amount (or percentage) as of a Valuation Date and that dollar amount will be adjusted by gains, losses and investment experience from that Valuation date to the date of rollover or distribution, as the case may be, to the Alternate Payee.  See attached re: Gains and Losses -  Gains, Losses, Ownership Interest and Constructive Trust 

 

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And if you use those and other ideas, consider that a cash-balance defined-benefit pension plan might express an account balance only once a year.

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