Recently I was hired by a divorcing client, let’s call him Joe, who had been contributing to two separate retirement plans for approximately 20 years. He was married for only the last 9 of those years. Fortunately, Joe saw the wisdom in hiring me to calculate the value of the amount he had contributed prior to his date of marriage including gains or losses so that we could determine what portion was his separate property. The difference meant tens of thousands of dollars to Joe, and far exceeded the cost of my performing the calculations.

Let’s take a simple example to show why a back of the envelope calculation could provide a completely inaccurate picture of the value of the marital vs separate portions of a 401(k) plan account.

Value of account as of date of marriage: $20,000
Contributions after date of marriage: $10,000
Value of account as of date of separation: $55,000
Amount of increase after date of marriage due to gains: $25,000

Many non-financial divorce professionals might decide to allocate the $25,000 gained on Joe’s account by giving 2/3 of the $25,000 in gains to Joe, since Joe had “$20,000 of the $30,000” in the account. This is a gross oversimplification and will most likely not reflect reality. Why? Two main reasons:


  1. It does not reflect when the $10,000 in marital contributions was actually made. For example, perhaps during the first years of marriage Joe cut way back on his contributions and therefore his pre-marital account balance earned much more than 2/3rds of the gains in the account.

  2. It does not reflect fluctuations on gains and losses over the period of the marriage. For example, perhaps shortly after Joe was married, the market had a steep downturn which decreased the value of his pre-marital portion. A larger portion of the gains earned post-marriage could be attributable to post-marriage contributions.

In summary, to get an accurate picture of what portion of an account is attributable to the amount that was there before you got married, you will need to gather as many statements you can, the more the better, beginning with a statement that is as close to your date of marriage as possible. A financial professional can then accurately attribute gains and losses to the pre-marital account balance and post-marital contributions.

Joe was able to prove what was legally his separate property. And that’s what’s fair.