Dividing a Retirement Account in a Divorce

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The division of a retirement account in a divorce can be difficult and confusing, even for experienced attorneys. Take, for example, the attorneys working on a case entitled Granger v. Granger, 2016 UT App 67. In Granger, Husband and Wife were both represented by family law attorneys who had been practicing for over ten years. During the trial, both Husband’s and Wife’s attorney agreed that the Husband’s 401k account should be divided according to the Woodward formula.

The Woodward formula refers to a Utah Supreme Court opinion stating that a defined benefit pension plan should be divided between divorcing spouses according to a particular formula. Woodward v. Woodward, 656 P.2d 431 (Utah 1982). The formula for calculating what the non-participant spouse would be entitled to is that whenever the participant chooses to terminate employment, the portion of the benefits subject to division between the parties is the portion of the benefit represented by the number of years of the marriage divided by the number of years of the participant’s employment. The non-participant is entitled to one-half of that portion. The Woodward court used this formula because at the time of the divorce, no present value could have been established, due to the fact that the participant was still working and accumulating benefits at the time of the divorce.

Turning back to the Granger case, after the trial was over, and Husband’s attorney began the process and paperwork involved in dividing the 401k account. In calculating what Wife would be entitled to withdraw, Husband’s attorney used the formula from Woodward, instead of just dividing the martial portion of the 401k in half. By doing this, Husband’s attorney stood to save his client over $36,000. A shrewd move indeed, but one that ended up backfiring on the attorney and his client on appeal.

When Wife’s attorney discovered the Husband’s calculation, and that his client would be losing out on $36,000, he objected and asked the trial court to revise the decree. The problem Wife’s attorney had was that he had already represented to the court that his client agreed to divide the account according to the Woodward formula, and that agreement was binding on the parties. Since Wife’s attorney agreed to divide the account using the Woodward formula, and Husband’s attorney used the Woodward formula in calculating Wife’s share, the trial court denied Wife’s motion to revise the decree. In other words, Wife was stuck with the fact that her attorney had unwittingly stipulated to using a calculation method that cost her $30,000 she ordinarily would have received had her attorney been a little more careful in the language he used.

Wife’s attorney had the following explanation:

I will admit that I stipulated to the Woodward formula. The problem that I’ve always had, and I guess I’ve had different results from all of the court is basically it’s always been my understanding the Woodward formula basically means you just divide whatever contributions were made to the retirement during the marriage.

If this was Wife’s Attorney’s understanding, then why didn’t he specify how the division of the 401k account was to happen, instead of carelessly stipulating to using the Woodward formula? What he should have said is that he stipulated to the contributions made during the marriage to be divided in half. Had he been a little more careful, he would have saved his client the hardship and cost of an appeal.

In our office, we made it our practice to never refer to the division of retirement accounts, “using the Woodward formula.” The Court of Appeals has now confirmed what we knew for quite some time, which is that using the Woodward formula only applied when there was a defined benefit plan and the present value of the benefit was not ascertainable. Woodward simply does not apply to a 401k account, or any other defined contribution plan. On all of our Petitions and Decrees of Divorce, we made it our practice to make it clear exactly how our client wanted the retirement account divided. We never simply referred to the division of a retirement account as a Woodward share, which was the critical error made by Wife’s attorney in this case.

In the end, the Granger decision ended up making the right call, despite the Wife’s attorney’s error and loose use of the term “Woodward formula.” The Granger court ended up sending the case back to the trial court to determine an equitable, or more equal, division of the 401k account, likely a one-half division.

If you have a retirement account to be divided in a divorce case, do not leave it to someone who is not careful about how the division should occur. Carelessness in a decree could end up costing you, as it did the Wife in Granger. At Fontenot Law, we are experienced and careful in dividing divorcing parties’ retirement accounts, and we can help you with your divorce.

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