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Equitable Division of Property

Posted by Stephen McDonough | Apr 25, 2014 | 0 Comments

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Divorce can impact your retirement plans, but you can minimize the negatives if you know how.

Quick Review Before ESOPs Explained

During your Massachusetts divorce, one important part of the process is the Equitable Division of Property.  In my work as a lawyer and divorce mediator, I've noticed that clients seem to have a lot of misconceptions about dealing with property during divorce.  Property includes three major types – real property, which is real estate; other forms of personal property; and debt.

To learn more about property division and Massachusetts divorce, please click here to read another article on our website.

Massachusetts takes a broad view when compared to many other states when it comes to classifying marital property.   ome jurisdictions exclude certain categories of property, such as assets received through an inheritance or owned prior to the marriage. Here, all property is subject to an equitable division, no matter where or when it was acquired.   This does not mean that every type of property is treated in a lockstep manner however.

There are many different categories of property, ranging from real estate to pensions and even pets.   This post is a brief introduction to what is commonly known as an ESOP, the Employee Stock Ownership Plan.

I can feel the power of your unbridled excitement right through the interweb as you prepare to read more about ESOPs.

ESOPs Fables

Unlike many other forms of employee stock ownership, theEquitable Division of Property – is a type of qualified retirement plan.  Contributions are set-up as a percentage of salary and used to purchase company stock.  The purchased stock is held in trust for the employee and vest over time; but while employed at the company the employee never actually purchases or holds the stock.  Upon disability, retirement, death or other termination of employment, the accumulated interest in the plan in the form of cash or stock is credited to the employee's account.

ESOPS are set up by privately-held corporations for many reasons, although liquidity and perpetuation planning are oftentimes considerations.

If you have assets in an employee stock ownership plan, then these funds are subject to a fair division during divorce, as part of the overall division of property and debt.   Like with other qualified retirement plans, a Qualified Domestic Relations Order (QDRO) will allow the ESOP account to be divided without tax penalties, nor will such assets be treated as income to the receiving spouse so long as such assets are maintained in a proper retirement savings account, such as an IRA.

Conclusion

Overall, divorce can negatively impact your retirement plans.   You cannot avoid property division at divorce, but you can keep more of your assets by avoiding an expensive “divorce war.”  By a divorce war, I mean a drawn-out litigated divorce where the only winners are the lawyers.   Carefully consider alternatives, such as divorce mediation, and keep more of your own money for the future.

About the Author

Stephen McDonough

Stephen works closely with clients facing divorce or other family conflict. He is a certified mediator through the Massachusetts Council on Family Mediation, a designation that only about 11% of mediators have obtained. In addition to providing mediation services, Stephen regularly appears in...

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