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Divorce, Dollars & Debt: Dividing the Assets: The Retirement Plans:
When it comes to retirement plans, there are two majors avenues of recourse. The first would be to entitle all benefits of any given plan to the original spouse who actually earned them via employment, Under this option, the spouse who will not receive any of the retirement benefits will be compensated with the award of another marital asset with approximate equal value. Of course, a determination of the actual value of a given retirement benefit will be necessary in order to exercise this option. There are two distinct types of retirement plans, known as "defined contribution" and "defined benefit".
In a defined contribution plan, each participant has one or more individual accounts. Monetary contributions are deposited into the account each year at a specified rate and under specified circumstances (either by the employee or employer). The contributions combine with the investment earnings of the account themselves to form what will hopefully be by the time of the employee's retirement a sizeable fund. At retirement, the employee will then either take a lump sum payment or purchase a retirement annuity (which will pay out on a yearly basis). Some of the more popular types of defined contribution plans include 401K, profit sharing, money purchase pension, saving, thrift, and employee stock ownership plans.
With defined benefit plans, the monies are not separated into individual accounts. Instead, the employer promises to pay the employee at time of retirement a monthly or annual amount for the rest of the employee's life. Often, the benefit is directly tied to the employee's average pay and length of services with the company. Since, however, these benefits will come in the form of future payments, to classify such plans as marital assets requires that a current monetary value be assigned.
This is known as "present value" and is a mathematical and financial concept. The future payments will be discounted to determine a value in the present time. Under this process, allocations will be made for such factors as interest rates, inflation, and other economic factors. In addition, the possibility that the beneficiary might die before having a chance to collect benefits as well as the fact that even if he or she does not die, they will undoubtedly have a limited life expectancy at the time of retirement.
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