Divide A 401k During Divorce Mediation

Did you know one of the most challenging types of assets to divide in divorce are retirement accounts, in particular 401ks, which has problematic features?

Chief PeaceKeeper™ Scott Levin 0:01
Hi everybody, this is Scott Levin. I am a family law attorney and Certified Divorce Financial Analyst who practices exclusively in mediation by choice. here in Southern California. I go by the moniker chief peacekeeper™, and I am joined by my good friend Laurie IP. Kim. Hi, Lori, how are you? Hey, Scott. I’m doing great. Thank you. Good. Laurie, do you mind giving us a brief introduction for our viewers and give them some understanding of your background and expertise?

Laurie Itkin, CDFA 0:33
Sure. So I’m a certified divorce financial analyst. It’s also known as a cdfa. And we see a phase of specialized training and education and continuing education every year on the financial and tax impacts of divorce. And hey, when you’re getting a divorce, most of it’s about money, isn’t it? So, I practice for my cdfa work, I practice mostly with California. I’ve worked on over 140 divorce cases in California already and am just pretty busy on my plates always full. And I’m a wealth manager, a financial advisor for clients, and I also do that nationwide.

Chief PeaceKeeper™ Scott Levin 1:17
Wonderful, Lori has the best and most incredible reputation. Literally, I have friends telling me you need to know Lori is gonna say no or he had got, Of course, I’m gonna worry already. But just as I know you too now, Scott. So that’s great. Yeah, thank you. So Laurie, a big issue in divorce is our retirement plans defined contribution plans. So those include 401 K’s 403, B’s, a whole slew of plans, and people wanting to understand during a divorce how, how do we value that asset? What is how do you look at a 401k? What portion of a 401k? Is the separate property of the person who earned it? And what portion is the community property? Especially when I get this all the time in mediation? Hey, I have this 401k prior to marriage, isn’t it just mine? Well, you had it prior to marriage, but there was also a period of time that you earned and added to that 401k during the marriage. And then of course, there’s been a period of time since the date of separation, which we won’t get into but that I won’t get into it. Okay, good. Okay. So we’ll get started after the date of separation that a couple identifies, then it goes back to earning a portion of that 401k is separate. So, you know, as a certified divorce financial analyst, how do you help people understand what they’re entitled to and what the real figures are in circumstances like that?

Laurie Itkin, CDFA 3:01
Right. Well, thank you. Yeah, it’s a great issue. And when we talk about 401k, it may also be a tsp, or a four, three B, it’s not going to be a pension, it’s going to be called a defined contribution plan where you pull your statement and you go, Oh, I have $247,000 as of December of 2019. Okay, so yes, so there are a lot of misconceptions over this. And it’s also remembering California, we have a lot of unique ways to deal with divorce math. in California. I like to say divorce math is not like regular math. So. So let’s take the normal situation. I like to put things in context, okay, you have a wife, who’s the primary breadwinner, she makes more than the husband, she has a 401 K, that’s worth $300,000. And let’s say he has an IRA, you know, I’m not going to complicate it. Let’s just focus on her. She’s got a retirement plan, too. But she’s, they’ve been married 10 years, the 401k is $300,000. Now, if you do nothing, the default is going to be you split that thing. 5050. Okay. That, you know, assuming it’s all community property, it’s very rarely all community property, except if you’ve had a very long marriage, but more and more we’re seeing people getting divorced. This is their second marriage. Are they married later in life? So let’s say her, her 401k is worth 300,000. Now, let’s say and she hopes she has this. We would need to see the balance of her 401k around the date of marriage. Can’t find it. And we got a problem, right? But I help solve problems. There are ways to do estimates, especially if the couple is in mediation. I cannot stress this enough because in media We can look at estimates we can be reasonable people, right? So let’s just say we think she had $100,000.10 years ago when they got married. Now, the growth of her separate property of that $100,000 is also her separate property. But any contribution she made, plus any company match that was made during the marriage is community property, including the growth on that community property. And then as you said, we have couples that have been separated for a long time, six months, three years. I mean, I even have, I’m even working with a couple it’s been separated eight years. And so as you implied, any contributions and company match and growth on that, after the date of separation is your separate property. And this is why couples often argue, well, what is the date of separation? Well, she moved out here, well, we got back together, oh, we haven’t slept together in three years. You know, I hear it all. You hear it all. The data separation, we could do another video on that. But

Chief PeaceKeeper™ Scott Levin 6:18
so there is a way when someone has $100,000 in their 401k. The marriage that there’s a way to value what that $100,000 grew to, to separate that growth out as a separate portion.

Laurie Itkin, CDFA 6:39
Yes, there is. Now the big question is, how much does the couple want to pay to get that answer? Okay? Pay meaning the time for someone like me, another cdfa, or a forensic accountant, we can do the old school route, which is the accurate route, and asked to see every monthly statement, or maybe every quarterly statement, all those 10 years of marriage plus a few Okay, sometimes it’s hard to get those records 50% of the cases at least you can’t even get all these records, because it’s so long ago. So what we can do sometimes, though, people say, Well, I had this or you know, we can then the couple I can say to the couple, can I estimate Can I look at maybe how your 401k has is allocated now maybe it was allocated, then and I can figure out pretty quickly is this person, if this person was a passive investor, and it was just a target-date fund, and they never changed it very easy to do. If this is a person who was day trading in their 401 k moving, I can there it won’t be great. So what I love to do in my memos, is do a range of estimates, if we assume x, y, z, and I believe these are reasonable assumptions, it could be x, y, z, you’re really fighting over $40,000. I mean, are you fighting over $40,000? Are you fighting over $400,000 that is the beauty of this? And mediation. Now, if you are going to fall out of mediation, you really want to get to the dollar on this 401 k, then you are going to have to go the forensic accounting route. Because if you cannot prove your separate property, it is presumed to be community property divided 5050.

Chief PeaceKeeper™ Scott Levin 8:26
You know that’s, I’m really glad you mentioned your reports because I’ve read your reports before, obviously. And not only are they super easy, you know, the way that you write it, but even I can also understand, my clients can understand, you know, and we’re dealing with people from all walks of life. So it’s the time that you put in is pretty amazing to simplifying. But I also love what you do when you’ll give like the two ranges, or the three ranges or whatever. And you’ll lay out your case for why you know why this is reasonable. And then you’ll say if we choose the medium, you know, it would be you know, the community property interest would be x. And I always love that because it gets people in mediation, you know, motivated, you know, for the middle, which is you know, the fair, the fair and even way to go. So, I really love I just want to comment, I love how you write those and how you do that.

Laurie Itkin, CDFA 9:23
Thank you. I mean, you want to know, what am I leaving on the table? What am I giving up? And if I can make that number of uncertainties small enough. I feel I’ve really delivered a great job in such a helpful role to the couple and the mediator, but there will be cases where I can’t do it. I try to use different methodologies to get into my estimate. I mean, I have a backtest portfolio analyzer which is a fancy way of saying if you were in the s&p 570% That and 30% of bonds, how would it have performed over time? Or I’d use that. And I also will do, I’ll take whatever statements you have, and I’ll build a spreadsheet and make linear estimates. And so there are different ways to get at it. But now this is where the price can range. So if people want quick and dirty from me, maybe I can do it in two hours again, so on these things, I’ve arranged anywhere from two to 10 hours, depending on how many statements we’re looking at.

Chief PeaceKeeper™ Scott Levin 10:31
Well, it’s well worth it. I will say, I mean, if people want, you want to understand what, you know, as you said, what you’re leaving on the table, what that what the numbers really look like, within reason. And, and so that you can make an educated decision when you’re deciding whether you know, to give something up, or to take your percentage or to make a trade-off. It’s just really important. And, you know, one thing that people don’t understand is that these, you know, equations in math, and in finance is not are not taught, typically in law school. You know, I don’t remember the last class. So, you know, there’s a lot of lawyers are just missing that whole side of things. And that’s why bringing in a certified divorce financial analyst cdfa, as Laurie can, is just a really, really smart thing to do for not in the scope of things, not a whole lot of money. So do yourself a favor. Lori, where can people find you?

Laurie Itkin, CDFA 11:31
The best way to find me is my website, which is the options lady.com the options lady.com.

Unknown Speaker 11:39
Right. Well, thank you so much. And we really appreciate you joining us and give I mean, she is really a very in-demand person, everybody. So I’m really blessed to have you here today. And I look forward to continuing to work with you and watching. You continue to succeed. So thank you. Thank you, Scott.

Transcribed by https://otter.ai