Issue: Should the court take into consideration future tax consequences when distributing pension benefits?
General Discussion: The states are mixed with regard to the propriety of reducing the value of a retirement plan to account for taxes that eventually may be owed on income received from the plan. 2d 949 (1984) Where court divides pension by reserved jurisdiction, the tax consequences are much less speculative and may be reasonably calculated.
Some courts have taken the view that income taxes should be subtracted when valuing a retirement plan, since the income will definitely be taxed when received.
CONNECTICUT DELAWARE DISTRICT OF COLUMBIA FLORIDA King v.
GEORGIA HAWAII IDAHO ILLINOIS In re Marriage of Emken, 427 NE.
The record did not indicate that the parties submitted any evidence with regard to the taxes that the husband may have to pay on the distributions, the court explained.
When a retirement plan is distributed through a qualified domestic relations order (QDRO) which provides each spouse with a share of the plan as it is paid, the future income tax liability does not have to be deducted from the current value of the Plan. 2d 1222 (1998) Court was not required to consider tax consequences for stock options.
When the Plan distributes the benefits to each party, the appropriate deduction will be made from the benefits to account for income tax liability.
However, if the court requires the participant to withdraw funds from the account, early withdrawal penalties and income taxes are normally taken into account.
The following is a summary of case laws we have come across in our research of this topic.
If nothing is listed under a particular state it is because we have not found any pertinent cases relative to this topic. Mann, 778 P.2d 590 (Alaska 1989) If the trial court expressly or effectively requires the participant to withdraw funds from the account, early withdrawal penalties and income taxes must be taken into account.
If you know of a case that relates to this topic, and do not find it listed here, please e-mail us the citation so that we can include it in this section. Dodson, 955 P.2d 902 (Alaska 1998) Discount the value of defined contribution plan to account for taxes.
COLORADO In re Marriage of Bayer, 687 P.2d 587 (Colo.
215 (1979) It is improper to deduct income taxes when valuing a retirement plan, primarily because future tax rates are unknowable and thus speculative. 1984) Early retirement penalties should not be deducted absent evidence that the property distribution necessitates the withdrawal.