When a couple marries and at least one spouse has been contributing to the company 401(k) plan, in NC and many other states, the account balance as of the date of marriage PLUS gains or minus losses is separate property. (This also applies to IRAs that existed on the date of marriage when contributions were made during the marriage.) This separate property amount can be significant when a couple marries later in life after they have had a long career. Tracing the gains and losses attributable to that date of marriage account balance vs the contributions made during the marriage requires financial expertise and an understanding of how to read account statements. Attorneys often do not have that expertise, because, and rightly so, their focus is on the legal aspects of divorce.

Unfortunately, this leads attorneys to divide these accounts using two common but incorrect methods: One is a pro-rata method based on the years of marriage vs years in the 401(k) plan (or IRA). The other method I see is to subtract the balance on the date of marriage from the total balance and then divide that difference by two. This will usually short the plan participant his/her true total gains on the balance he or she had on the date of marriage. The fact that in the last 15 years the stock market has gone up, up, up makes this even more true.

Why are these methods wrong? Because they do not consider compounding interest and ignore the fact that marital contributions made toward the end of the marriage had little time to accumulate gains. The date of marriage account balance has been growing and compounding the entire time. It is wrong to treat all the marital contributions as if they had also been growing the entire marriage. But that is what I see being done!!!!

It is well worth the fees paid to a financial expert like a Certified Divorce Financial Analyst (CDFA) to compute the gains on the balance you had in your 401(k) plan or IRA when you married by analyzing the statements from the date of marriage through the date of separation (or divorce if that is the applicable cut-off date) and attributing the TRUE and total gains earned on the separate property balance. Yes, I know gathering those statements can be a headache, but the difference can be thousands upon thousands of dollars.

I encourage you, even if you have hired attorneys, to have these calculations done by a CDFA early in your divorce process so you can be sure to get the separate property you are legally entitled.