Passive Appreciation in Retirement Accounts

Passive Appreciation in Retirement Accounts

If you do not have a pension as your primary retirement vehicle, then you likely have a 401k or IRA. The money that accumulates as a result of your contributions during the marriage is considered a marital asset.

By contrast, the portion accumulated before the marriage is non-marital, meaning you will keep that portion before any equitable distribution.

But how do you value the portion of the 401k or IRA from before the marriage? At first glance, the calculation to determine the marital portion of a retirement account seems simple: determine the account’s value at the date of marriage and subtract it from the total value of the account at the date of filing. The remainder would be the marital portion.

However, one may consider separating the active appreciation due to money contribution from your paycheck from the passive appreciation due to changes in market conditions. When considering the marital and non-marital portions of retirement accounts, the dividends/appreciation can be huge.

For example, let’s hypothetically state a woman who married her husband in February of 2004 had a 401k with a value of just more than $50,000. When her husband filed for divorce in late 2012, the 401k was worth $230,000.

The common-sense approach would suggest that the wife had $50,000 in non-marital 401k, and approximately $180,000 in 401k increase during the marriage.

This leaves $90,000 to be split among both spouses. However, the non-marital portion had passively grown from $50,000 to $106,000. This means the wife’s non-marital portion was $56,000 more than she anticipated, allowing her to keep an additional $56,000. Total savings = $28,000.