Couples who are divorcing need to divide all their marital property and debts, assigning property, money, and debts to one spouse or another. All property, income, and debts acquired during the marriage are considered “marital”—it does not matter if one spouse made more money than the other or if the couple kept separate bank accounts and paid for expenses separately. Division of assets in Massachusetts must be “equitable”. This means they must be fair but do not have to be exactly equal. This can empower couples to divide their property in the ways that work best for them, as long as both spouses find the division to be fair. Through divorce mediation, uncontested divorce, and expert qdro drafting, Attorney Julia Rueschemeyer has helped nearly 1000 couples to customize their division of property in ways that the couple (and the judge signing the divorce decree) have found fair and equitable. Feel free to call or email Julia with any questions you have about division of marital assets when divorcing.
By law, Massachusetts is not a “community property” state, but in practice, even after litigation, most property settlements end up very similar to what they would be in community property states. In community property states, premarital property is defined to be “separate property” belonging to one person, and all property accumulated during the marriage (with the possible exception of inheritances) is defined as “community property,” belonging equally to both spouses. In community property states, couples are obliged to follow an exact 50-50 split of community property.
In Massachusetts law, by contrast, a judge can throw all property, both premarital and marital, into the mix, and the court does not have to divide it evenly. If a court, rather than the couple themselves, is deciding how to divide assets, Massachusetts law (Chapter 208, Section 34) specifies that “the court may assign to either husband or wife all or any part of the estate of the other.” In other words, the court can take all the property of one spouse, even premarital, and give 100% of it to the other spouse! Massachusetts law states that the court, when dividing property, “shall consider” 15 factors, including the length of the marriage, the age and health of the spouses, and past, current, and future income earning potential of each spouse. Unfortunately, the law does not specify how these factors should be weighed or what effect, if any, they should have on the eventual division of property. Given the glaring lack of practical guidelines in state law as to what “fair and equitable” might mean, it is not surprising that most couples and courts end up with divisions of property that are very similar to what they would be in community property states.
Couples who are negotiating the terms of their separation agreement out of court, e.g., through mediation with Julia Rueschemeyer, do not have to try to base their agreement on these 15, poorly-explained factors. Couples can simply agree on a division of assets that they find fair. For many couples, this means taking a 50-50 division of property acquired during the marriage as a starting point.
In divorce mediation, couples also have the power to determine how inheritances received by one person during marriage should be shared or divided. If inheritance funds are spent by the couple on a house in which the couple then lives for 15 years, the couple tend to treat that money as long-since shared. If a spouse in a 3 year marriage receives an inheritance one month before divorcing, the couple may be more likely to treat that money as belonging to just one spouse at the time of divorce.
If you have children, you should note that changes in tax laws for 2018-2025 affect the ways that tax breaks are distributed or shared among divorcing spouses.
If a couple chooses to aim for a 50-50 split of property, each piece of property can be assigned a value, so that the the total value of the property (and debts) taken by each spouse is approximately equal. Although one spouse might keep a house and all the credit card debt, and the other spouse might keep the retirement account and two cars, the value of the assets and debts that each spouse keeps can be adjusted and made equal in the separation agreement.
In the example graphic to the right, a couple has two houses, two cars, a boat, money in the bank, and some credit card debt. After property is put into the husband’s column and into the wife’s column in a first pass at dividing the property, it becomes clear that the value of the assets going to the husband is higher than the value of the property going to the wife: the property in his column is worth $410,000, while the property in her column is only $300,000.
To equalize the value of the assets that each gets, the husband can pay the wife $55,000 from his bank account, so that each gets assets of $355,000. She gets $300,000+$55,000=$355,000, and he gets $410,000-$55,000=$355,000.
You can experiment with dividing the value of your assets (and debts) in the calculating table below.
You can use this interactive table to get a sense of how the value of your assets can be divided. The table has six columns, in which you 1) name the property or debt, 2) assign a fair market value to the property, 3) list any loan or debt associated with the property or debt, and, in the last two columns, assign the value of assets or debts to the “Husband Keeps” or “Wife Keeps” column. The total value that you enter in the the “Husband Keeps” and “Wife Keeps” in each row must equal the value in the “Equity” column for that row. When you press “Calculate”, the table will tell you what percent of the assets are assigned to each of the two spouses, and how much money the husband or wife would have to transfer to the other in order to achieve an equal division of assets.
|Name of property or debt||Fair Market Value||Loan or debt||Equity||Husband Keeps||Wife Keeps|
Although deciding what to do with the house in a divorce can seem overwhelming, there are really only 3 choices:
1) You sell the house and split the proceeds from the sale,
2) you keep the house and stay in it, or
3) your spouse keeps the house.
If one of you keeps the house, that person will need to “buy out” the other person. So if you have $100,000 equity in the house, the person who stays might compensate the other person $50,000, if you are aiming for a 50-50 split. This can come from savings, a retirement account, or other assets. Sometimes it is possible to refinance the mortgage and cash out enough money to compensate the person who gives up their share in the house.
If you have a mortgage for the house in both spouses’ names, you will need to move the mortgage into the name of the person who is keeping this house. You can do this with a mortgage refinance, or, in some cases, the bank where you have your mortgage may allow you to make an “amendment to the note” or a “modification to the note” or an “assumption of the note.” If your mortgage bank allows you to do this, you keep the original terms of your loan and continue paying it as if nothing had changed except that the mortgage is now only in one name. This is less expensive and easier than refinancing and getting a whole new mortgage.
If only one spouse’s name is on the mortgage or you have no mortgage, but both your names are on the title for the house, you can use a “quitclaim deed” to move a spouse’s name off of the title. A real estate attorney can do this for you. The infographic I created at left, represents the choices and outcomes that couples negotiate in regard to a marital home.
Pensions and retirement accounts, along with a marital home, are often the highest value marital assets that a couple must divide. Therefore, it is important to understand the different types of retirement benefits and the options for dividing them.
The infographic flowchart below illustrates the ways in which different types of retirement accounts are divided in divorce. Text below the infographic describes the different types of accounts and the steps involved in dividing them.
Retirement assets typically belong to one of the two categories:
1)“Defined Contribution Plans” such as 401k’s, 403b’s, 457’s, federal TSP, and IRA’s are like savings accounts. Their value is simply the amount of money that is in the account at any given time. It is easy to determine their value when assets are divided by looking at an up-to-date statement of their balance. This value is often divided into pre-marital value—money accumulated in the account before marriage–and the marital value—the money accumulated in the account during marriage. The marital amount of the pension is then divided as part of the division of assets.
To actually divide the retirement asset, you will need a “QDRO” (Qualified Domestic Relations Order). A QDRO is a court order, written by an attorney or accountant and signed by the judge, which instructs the 401k or retirement account administrator how to divide the assets. These are rolled over into a retirement account in the name of the spouse who is receiving them. Attorney Julia Rueschemeyer can prepare these QDRO documents for you. Dividing IRA’s does not require a QDRO (since one spouse can simply transfer retirement funds to the other spouse), but it does require special language in the separation agreement.
Money saving tip: If you have an old 401K (or 403b or 457) from an employer where you don’t work anymore that you might want to divide in a divorce, you can do a “direct rollover” of that old 401K into an IRA in your name. That gives you direct control over that account, so you do not need a QDRO to divide that account when you divorce. This could save you the cost of a QDRO ($400-$1000) and the 2-6 month process, including a court hearing, that QDROs require.
2) “Defined Benefit Plans” are often called pensions (or sometimes annuities) and are common among state employees and public school teachers. The value of these has almost nothing to do with the amount of money, or balance, they have in them, but rather is determined by a formula. The most common defined benefit plans in Massachusetts are the State Employee Retirement System (SERS) and the Massachusetts Teachers Retirement System (MTRS). In both of these plans, the amount of future pension payments is determined by a formula that includes the recipient’s age, number of years of service, and the average salary from the highest three consecutive years of earnings. Massachusetts state employees can calculate their estimated pension benefits with a calculator on the state site. Public school teachers can use the easy-to-use, online MTRS pension calculator on this site, or or the more awkward Retirement Benefit Estimator from the MTRS state site, to project their future benefits.
Call or email Julia with questions about QDRO’s or division of marital property, including retirement assets.
There are two ways to divide and distribute the marital portion of a pension:
1) In the “deferred distribution” method, a portion of each future monthly benefit is sent to the beneficiary, the spouse who was not the pension participant, once benefits begin (typically at retirement).
2) In the “immediate offset” method, the pension participant “buys out” the other spouse from the pension. The participant uses cash, house equity, or other assets to compensate the non-participant beneficiary at the time of divorce. The pension participant then keeps 100% of future pension benefits. This requires calculating a “present value” of the pension
With the “deferred distribution” method, in which future, monthly pension benefits will be shared, instructions to the pension administrator are given in a DRO (“Domestic Relations Order”), the type of order used to divide many government or public employee pensions. Like a QDRO, a DRO is a court order, written by an attorney or accountant, and signed by a judge that instructs the pension administrator on how to divide the future payments from a pension. It might specify the survivor beneficiary, for example, and the percent of future payments that each spouse will receive.
In the “immediate offset” method, a pension participant compensates the spouse for his or her portion of the value of the future pension payments at the time of the divorce. This requires calculating a present value of the pension, as described in the next section.
It is also possible to divide the value of a defined benefit plan, or pension, in the present, without waiting for retirement. In this case, the pension participant keeps all future benefit payments from the pension by “buying out” the spouse at the time of divorce. To do this, one must calculate a “present value” of the pension, which requires complicated calculations. This is typically done by a pension valuator or actuary (currently costing about $175 in Western Massachusetts). You can also use this low-cost, $35 present value pension calculator.
Once a present value is determined, a spouse can “buy out” the other spouse from the pension. This means that the spouse with the pension can keep all the future benefits of the pension, but must come up with a large amount of money at the time of divorce to compensate the other spouse. If a person has worked 10-15 or more years in a job with a pension, the present value of the pension can be surprisingly high.
Take the hypothetical example of a couple divorcing after 15 years of marriage. The pension participant in the couple is 45 years old, having been employed for those same 15 years by the state of Massachusetts and now earning $50,000/year. The present value of that pension (calculated using a 2.71% rate, 2017 mortality tables, and a retirement age of 62) is about $236,000 at the time of divorce. (If the pension participant stopped working for the state at the time of divorce, and waited until age 62 to collect pension benefits, those benefits, to be shared by the couple, would be worth about $1375/month for life.)
For some couples, finding the present value of a pension is helpful if one spouse wants to keep the house, and the other spouse wants to keep his/her pension. If the house has equity of $200,000, the staying-in-the-house-spouse would need to pay the other spouse $100,000 to divide the asset evenly, but many people do not have $100,000 in a bank account to make such a buyout. If the spouse-who-is-leaving-the-house has a defined benefit pension, however, the couple can have a present value of that pension calculated for them. If the present value of that pension is around $200,000, the spouses can divide the assets evenly without any cash changing hands.
There are a range of legal methods for valuing and dividing future pension benefits in Massachusetts. At one end of this range is the 1) the “accrued” (or “bright line”) method, and at the other end of the range is 2) the “relative-time” (or “projected” or “coverture”) method. Massachusetts is the only state in America that allows either method to be used, and is only one of ten states that allows the bright line method to be used at all. The bright line method is nearly always unfavorable for the alternate payee.
Take the example of a public school teacher who has been married for 17 years and divorces at age 47, when earning $70,000 per year. Using the “coverture” or “relative time” method of calculating the pension division, the alternate payee (ex-spouse), would receive $1473 per month at retirement. Under the “bright line” method of dividing the pension benefit, the alternate payee would receive only $347 per month at retirement. It is also possible to use a number of division methods that are intermediate between bright line and relative time methods. You can see the calculations and financial outcomes for these various pension division methods in this .pdf. You see can more discussion of the assumptions going into these calculations at the bottom of the QDRO page on this site.
1) The “accrued” (“bright line”) method values the pension based solely on the marital years. It does not take into account the fact that pensions increase in value if you wait until retirement age to take them, even if you do not continue to participate in the pension and contribute to it. If these marital years are during the early years of pension plan participation, this results in less of the eventual pension being shared with the alternate payee, the ex-spouse. This is because pension benefits are nearly always based on formulas that disproportionately value the final years of plan participation or reward participants for taking them at more advanced ages. Most states do not allow this method of dividing a pension, but Massachusetts does. With this method, the exact dollar value of the alternate payee’s benefit can be determined at the time of the divorce.
2) The “relative time” (“projected” or “coverture”) method is required by law in most states, including New York (“Majauskas formula”) and New Hampshire (“Hodgins formula”), and it is the method recommended by the American Law Institute in their Principles of the Law of Family Dissolution: Analysis and Recommendations (§ 4.08). This method values each year of pension plan participation equally (the “marital foundation theory”). Thus, if a couple is married for 14 years, and the spouse with the pension participates for 30 years, the “marital portion” (or “coverture factor”) of the total benefit is 14/30, which is equal to 46.67%. This 46.67% of the eventual benefits belong to the marriage. Each spouse will get one half of this marital portion of the pension, or 23.33%. (The spouse who participated in the pension plan will, of course, receive the other 76.67% of the pension benefits.) With this method, a formula is given in the separation agreement (and reproduced in the QDRO), and the actual dollar amount that the alternate payee will receive is determined at the time of retirement. The retirement plan administrator will consult the QDRO for the formula to be applied at that time.
This might initially seem unfair to the pension participant (“Why are my years of work AFTER the divorce considered for payments to my ex-spouse?”), but this is not the case. If you earn 10 years of pension credits and then quit the job 1 year after divorce, the marital portion of the eventual pension benefit is 10/11. Almost all of the pension (10/11, or 91%) must be split between the participant and the alternate payee, but the value of the pension is still low. If the participant works for 20 years after this divorce, the pension benefit will be much, much larger. However, the fraction that belongs to the marriage–and must be split between participant and alternate payee–is much smaller, only 10/30, or 33%. In the first case, the alternate payee gets a high percentage of a small benefit; in the second case, the alternate payee gets a small percentage of a larger benefit. The longer a pension participant works after marriage, the smaller the percentage that the ex-spouse will receive.
Remember that the alternate payee normally only gets half of the marital portion, as the marital portion belongs to both spouses.