Law

Tennessee Divorce & 401K’s:Yours, Mine & Ours

Those of us who take divorce cases have argued for years over the issue of dividing 401K accounts that have increased in value due to the passage of time. Or, for that matter, that have lost value due to market conditions. The first part of this quagmire was recently set to rest by the Tennessee Supreme Court in Snodgrass vs. Snodgrass. The Court said:

In a divorce proceeding the trial court awarded the parties the premarital balances in their respective 401(k) accounts as each party’s separate property. Recognizing the existence of prior, inconsistent analyses by different panels of the Courts of Appeals with respect to whether 401(k) accounts are “retirement or other fringe benefit rights relating to employment” as defined by statute, the Tennessee Supreme Court held that:
(1) any balances that exist in the parties 401(k) accounts as of the date of the marriage remains the parties’ separate property,
(2) the entire net amount by which the parties 401(k) balance increased during the term of the marriage is marital property, and
(3) it is not necessary to consider the parties’ contributions to the increases in the value of the 401(k) plans during the marriage. Snodgrass vs. Snodgrass, (Tenn. Oct. 9, 2009).

While this may seem almost too loaded with common sense to be true, it has laid to rest an important issue during many trials. In my experience the issue sharpens into the “tangible and intangible” contributions of the respective spouses to the appreciation of the 401k asset. For example, if the Husband was a bank president and the Wife was a home maker, the arguments abound that he did all of the work, earned all of the money and that the value increases over time did not result from any action (such as hosting dinners for clients) by the Wife. money%20argument.jpgOn the other hand, Wife argues that the added values result from her services as a home maker and wife which allowed the Husband to earn a large income and that but for those services, the Husband would have been unable to earn as much money as he did.

Justice Cornelia Clark wrote in Snodgrass [T]hat net gains from any source
accruing in such accounts during a marriage are all marital property within the meaning of the second clause of section 36-4-121(b)(1)(B)” without resort to the issue of the parties contribution. A sound and good decision in my book. Had the Court ruled otherwise then there would continue to be interminable wrangling over this issue when the reality is that the law says that marital property is that property which is acquired during the marriage unless acquired by some source that clearly is separate, i.e. a gift, a bequest from a will, etc.

Bravo to the Supreme Court.

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