Q: How does Minnesota law treat taxable retirement assets with regard to a divorce settlement?
A: The Minnesota Supreme Court answered this question in the case of Maurer v. Maurer, 623 N.W.2d 604 (Minn. 2001). In that case, a husband and wife
had a divorce trial. Each party was awarded property valued at $77,840. The award to the husband included three deferred compensation plans and one retirement plan.
Husband argued that the court should value those assets based upon their after-tax value because they would be taxable upon distribution. In support of his argument, an accountant testified as to the after-tax values of the deferred compensation and retirement plans. In calculating the after-tax values, the accountant had used husband’s previous year’s tax rate and a projection of husband’s then-current year’s income. The accountant also testified that according to professional standards and generally accepted accounting principles, it was appropriate to calculate the tax using the person’s current tax rate as opposed to making assumptions about what the tax rate might be when the asset is converted to cash. The wife argued that consideration of futuretax consequences was mere speculation and impermissible.
The Minnesota Supreme Court agreed with husband, stating that the trial court may consider the tax consequences of its award, so long as the trial court does not rely on generally insufficient evidence. The Court also explained that valuation of assets is very often an approximation, but that an approximation is fine as long as the value arrived at lies within a reasonable range of values. In the case of Maurer, the Minnesota Supreme Court was assured that the trial court had properly used its discretion in considering the after-tax consequences of the deferred compensation and retirement assets because the accountant’s testimony had provided the trial court with a reasonable and supportable basis for making its decision as to the tax liability.
Letty M-S Van Ert is an associate attorney at Tuft & Lach, PLLC located in Maplewood, MN. In addition to representing clients in the areas of estate planning, probate, divorce, child custody, child support, and other family law matters, she is also a Rule 114 Qualified Neutral (mediator) serving clients in Minnetonka, St. Louis Park, Plymouth, Edina, St. Paul, Minneapolis, and surrounding areas.