Retirement as Deferred Compensation: What the Divorce Lawyer Needs to Know Regarding Qualified and Nonqualified Plans

Retirement savings often comprise a substantial component of marital assets in a divorce. For executives and other high-income earners, there may be additional deferred compensation beyond traditional 401(k) or IRA accounts due to the simple fact that yearly contributions to those accounts are limited. Additional options for deferred compensation present high-income earners with an ability to save for retirement in a way that is commensurate with the lifestyle they have been afforded as a result of their employment. Deferred compensation plans can fall under one of two categories: qualified or nonqualified. Both types delay payments to employees—allowing them to defer tax until they have an unrestricted right to the funds. This article discusses both types of plans, as well as what the family law practitioner must understand and consider when valuing and dividing these assets during a divorce.