Tax Treatment in Pension Evaluation

The courts consider the tax consequences of a property division to be a relevant factor in property division. In many states, the statutes either explicitly or as interpreted by the courts require consideration of the tax consequences of a distribution of a pension. In other jurisdictions , appellate courts require similar consideration even when the applicable statue is silent with respect to tax consequences.

Tax consequences are a discretionary issue faced by the courts in factoring the amount subject to equitable distribution and community property division. Pension Evaluators^® at Troyan, Inc., can approach this issue if requested. We provide pension evaluations on that recognize the tax impact of retirement benefits on divorce. We can supply you with your states applicable case law on this issue if requested when ordering a pension evaluation. Taxpayers involved in divorce should consider the tax implications of distributing the benefits from retirement plans between the parties. Only if the settlement is qualified will the benefits and the tax liability vest with the transferee spouse. Individual retirement account benefits must be transferred based on a court order or written settlement agreement. In determining asset allocations for property settlements, employee retirement plans are often a taxpayer's most significant asset. Since many jurisdictions treat retirement plans as assets subject to division in divorce settlements, more spouses are including them in divorce proceedings. Case law indicates that an attorney's failure to claim retirement benefits in a divorce settlement may be malpractice (Gorman v. Gorman, 90 Cal. App.3d 454)