How to Uncover Deferred Compensation Plans Set Up to Hide Assets in Divorce

Deferred compensation plans may constitute marital property.

Deferred compensation plans and defined contribution plans, such as 401(k) and Individual Retirement Accounts, enable you to funnel pretax income into an account where it grows tax-free until withdrawal. In most states a deferred compensation plan constitutes marital property to the extent that such contributions and the employer's match were earned during the marriage and are thus divisible by a court. Such plans that were not in existence prior to a couple's separation may still constitute marital property if they were funded using money that itself constitutes marital property. The existence of such plans is important information in any divorce.

Things You'll Need

• Subpoena or Authorization to Release Information
• Copy of your state's civil procedure code

Instructions

1. Demand that your spouse produce bank records, pay records, employment information, tax returns and financial statements pursuant to the discovery rules of your state. Subpoena his employers to produce information related to his retirement benefits. The existence of a deferred compensation plan may be readily apparent on his pay stub or employer's affidavit. If your case is not in court, demand that your spouse execute a broad authorization to release all documents that provide access to his information.

2. Examine the W2 forms from your spouse's employer. If the number in the box for "Social Security Wages" is higher than that for "Wages, Tips and Other Compensation," this indicates that some of the employee's income was not taxed. The employer probably put this amount in some type of tax-deferred account.

3. Examine your spouse's tax returns in search of plans that he may have set up outside of his employer. As tax deferral is a key benefit of entering into a deferred compensation plan, your spouse probably deducted contributions to the plan from his taxable income even if his employer didn't do it for him. Once you uncover the existence of such a plan, you can pursue records related to it.

4. Review your spouse's bank records. A monthly transfer to a deferred compensation plan may appear on his bank statement. A large, unexplained withdrawal may have been used to set up a plan or otherwise remove the funds from the marital estate. Furthermore, a discrepancy between what his employer pays and what he deposits in the bank raises questions as to the use of funds that were not deposited.

5. Read any financial statements, such as loan applications, your spouse may have completed in the last three to five years. Lenders interested in borrowers' financial health sometimes ask about the borrower's assets, including retirement accounts. While he may wish to hide the existence of the account from you, he has an incentive to disclose it to a lender in that having the account makes him more likely to get the loan. Additionally, many loan applications contain warnings of criminal penalties associated with providing false information to a lender; these penalties are typically higher than those providing false information to a spouse in a divorce.

References

• "Deferred Compensation Plan"; Pennmutual.com; Retrieved September 21, 2010.
• "IRC 457(b) Deferred Compensation Plans"; IRS.gov; Retrieved September 21, 2010.
• "457 Deferred Compensation Plan"; ICMA-RC.org; Retrieved September 21, 2010.
• "Deferred Compensation Plans"; Quatloos.com; Retrieved September 21, 2010.