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401k Plans
Pre-Marital Accumulations
Negotiating and Drafting Domestic Relations Orders

We begin with a description of the genesis of the problem. A case settles and counsel agrees to the following language regarding the division of the Husband's 401k Plan.

The parties shall equally share in the marital portion of Husband's pension plan as of December 31, 2017. From that date until distribution pursuant to a Domestic Relations Order, Wife's share shall be adjusted for positive and negative earnings.

No discussion with either spouse regarding their understanding of the term "marital portion" takes place. Shortly thereafter, this award to the Former Spouse is memorialized in the parties Marital Settlement Agreement. Then Jane Walther's attorney prepares a Domestic Relations Order awarding Jane one half of the "marital" value of Tom Walther's Plan on December 31, 2017. This was calculated as follows:

Total Plan Value on December 31, 2017: $926,295.28

Half to Wife: $463,147.64

After seeing a copy of the "Final" Agreement and the actual value of the award to Jane, Tom advises his attorney that he does not agree with the amount awarded to Jane.

Only at this late moment, does Tom advise his attorney that he was employed and accruing benefits prior to marriage and that the assets of these prior plans were actually rolled into his current 401k with Howitzer Corp.

Based on this delayed realization, Tom complains to his attorney, that the amount awarded to Jane is excessive.

Note, Tom, is not specific as to amounts, nor does he offer statistical data in support of his contention, regarding the amount awarded to Jane. , Tom, just "feels" Jane is getting too much.


Avoid crafting the division of any Defined Contribution Plan, e.g. a 401k, 457 Plan, 403b Plan, prior to fully questioning the Plan Participant Spouse as to the possibility that there exists a premarital component to this Plan. Problems arise when it is eventually dawns on the Plan Participant that his plan contains premarital assets from a prior plan(s) that have been rolled into his current Plan.


Further complicating the initial caveat, is a circumstance in which, subsequent to your jurisdictions' End of Marriage Date, the titled spouse, makes a transfer of the full 401k balance into an Individual Retirement Account and then makes post separation contributions to this IRA. This even more complex issue is beyond the scope of this article. For this complication, contact Troyan directly.


Regarding any Defined Contribution Plan, presume Nothing. Confirm early in the case, if a premarital component to any Defined Contribution Plan, e.g. a 401k, 457 Plan or 403b Plan exists. If such premarital assets do (did) exist, you must confirm prior to any agreement that sufficient statistical data is available so that your expert can perform a "Gain and Loss Analysis" that has unquestioned mathematical validity. This analysis facilitates separation of the premarital component (and the appreciation of this component) from all marital accumulations and the earning on only this marital component.

Clarification # 1.

Sufficient "statistical data" means the participant's "account balance statements". Not "transaction" statements. A usable "account balance statement" will contain all of the following:

  • Period's Beginning Balance
  • Employer Contributions
  • Employee Contributions
  • Transfers In
  • Transfers Out
  • Loans
  • Loan Repayments
  • Withdrawals
  • Fees or Expenses
  • Earnings
  • Period's Ending Balance


When it is established that a premarital component exists, have all calculations, prepared and agreed to prior to specifying the amount to be transferred to the Former Spouse. Be specific, provide the client a digest of the expert's worksheet. Record the fact that your client has agreed to the indicated amount to be assigned to the Former Spouse.

Caveat # 3A.

Be ever mindful of the fact that Account Balances can go up or down. Make clear to the client that the value agreed to on Date XYZ, is not necessarily the value the Former Spouse will actually receive. Due to market fluctuations this agreed value can rise or fall.

Caveat # 3 B.

Beyond the scope of this brief article are the procedures to employ when dividing a Federal Employee's Thrift Saving Plan (TSP). The division of the TSP by the Office of Personnel Management applies a process that differs from the methodology applied by ERISA 401(k) Plan Administrators. Contact Troyan for details.

Caution #1.

Most employers do not retain historical data for more than five years. If your matter has a premarital component that requires historical data for more than five prior years, confirm in writing with the Plan's Administrator that such data exists and will be made available to your expert.

Caution # 1A.

When you have premarital account balances and the essential data is no longer available (or does not exist), recognize that you have scant choice but to opt for a calculation procedure that is not mathematically valid. Generally this is some form of "Imputed" value calculations. For example:

֍ Impute earnings on the estimated premarital value (if it is not possible to even estimate (guess) on this value, you can try,

֍ Coverture Fraction. For reasons unclear, this method in many instances produces a result closest to the true "Gain and Loss

֍ Difference between current value and value at marriage (if you have this data or can "estimate value at marriage".

It is emphasized that each of the three above present a post-divorce exposure to the attorney since these three alternatives are not well intended but are not mathematically valid. Each is at best well-intended but totally speculative.

For these reasons the experienced practitioner is wise to avoid at the outset, dividing Account Balances absent comprehensive Account Balance Statements. The danger exists that at some point should data emerge it could be to your detriment if you accepted what is later determined to be severely flawed data. If a guess it must be, then be certain no darts will at some future date be aimed in your direction.

Caution # 2.

If your matter contains historical data from one or more prior employers, be certain that you can access sufficient data for a mathematically valid 'Gain and Loss Analysis" and that you can in addition, confirm the amount of each "rollover" transferring funds to the new employer's Plan or "transfers out" that are in fact "distributions".

Caution # 3.

If your matter contains historical data from one or more prior employers, be certain that you can accurately confirm whether prior loans or withdrawals have taken place. Many times, loans and repayments are difficult to locate on the Account Balance Statement.

Caution # 4.

If loans or withdrawals or other "transfers" or distributions have taken place during the marital period be certain you and your adversary agree as to the treatment of these transactions as marital or not marital. This means you may have to calculate (to your client's satisfaction) how the percent allocated to each spouse was determined.

Caution # 5.

If loans or withdrawals or other distributions have taken place during the marital period, be certain you and your adversary agree as to the treatment of repayment of such transfers out. Determine as soon as possible if this activity is fully marital, not marital or partially marital. If a ratio is applied to these repayments, be certain both parties accept the ratio (percentage) applied to each spouse. But, then see Caution # 6.

Caution # 6.

Attorney's often Agree that the Former Spouse (Alternate Payee) shall be responsible for some portion of a loan's repayment. This is NOT ACCEPTABLE) to ERISA Plan Administrators. Only the plan participant may make loan repayments. When it is agreed that some portion of a loan is deemed marital, you may not provide that the Former Spouse shall make direct payments to the Plan.

Caution # 7.

Avoid easily misunderstood terms, e.g. "the amount due to Wife, shall be net of all loans". This is an invitation to future exasperation. For Example.

Assume the account balance in the 401k at divorce is: $450,000.00

The language of the Marital Settlement Agreement provided:

Wife is to receive half of the net amount based on an

existing loan of $50,000.00


Option One.

Reduce the $450,000.00 by the full amount of the loan. Then assign to Wife half of this balance:

$450,000.00 - $50,000.00 = $400,000.00

To Wife: $400,000.00 ÷ 50% = $200,000.00.

The symbol "*" means "multiplied by"

Option Two.

The known sum of $450,000.00 represents the value of the Account less the existing loan.

To Wife: $450,000.00 * 50% = $225,000.00.

Option Three.

Transfer to Wife, half of the account's balance less her share of the outstanding loan.

To Wife: $450,000.00 - $25,000.00 = $212,000.00.

To avoid this scenario, be sure to state something akin to the following.

A Domestic Relations Order shall be prepared distributing to Jane Walther from Tom Walther's Howitzer Arms Co., 401k the sum of $xxx,xxx.xx. Subsequent to qualification of this Domestic Relations Order, Jane's distribution shall be adjusted for earnings.

This Article is but a portion of the possible angst that attorneys dividing Defined Contribution Plans will confront.