Market Risk in Dividing Retirement Assets upon Divorce

Divorcing spouses in Pennsylvania might be well-advised to consider the risks associated with various retirement vehicles, as they decide which assets to retain or divide in equitable distribution.  A recent non-precedential decision of the Superior Court, Wyatt v. Wyatt (No. 1228 MDA 2013, June 11, 2015), illustrates this point.

In Wyatt, one of the spouses had a railroad pension that would pay a guaranteed monthly annuity over the employee spouse’s lifetime.  By contrast, the other spouse had a 401-K plan.  Upon equitable distribution, the 401-K spouse asked the trial court to divide both retirement plans, so that each spouse would have a guaranteed benefit as well as a retirement account that would be exposed to the risks and rewards of the securities market.

The trial court declined, finding that the railroad employee could keep his entire pension, and giving equal assets to the other spouse.  The Superior Court affirmed, on the principle that immediate offset distribution is favored (as opposed to deferred distribution, or QDROs).

A good financial planner would probably recommend a healthy mix of slow-growing but guaranteed investments (like annuities) as a hedge against market-influenced investments that might be more volatile.  Perhaps it might be time for the court to give this a second look.