Couples who have spent a lifetime together sometimes decide to go their separate ways as they get close to retirement. If this happens to you, you may worry about the retirement accounts you have accumulated during your career. In California, a community property state, courts typically divide retirement accounts like any other asset.
Besides owning a house, retirement accounts are often one of the biggest assets that can get negotiated in a divorce. Whether it is a defined benefit plan or defined contribution plan, whether it’s State or a Federal, there are very specific laws that have to be considered in dividing the accounts.
Marital Versus Separate Property
Under California law, individual retirement accounts, pension plans and contribution plans sponsored by an employer count as marital property. There are exceptions where retirement accounts can be become separate property. For example, someone may have opened a retirement account before they got married. Accumulations of an account prior to marriage is viewed as separate property. However, accumulation of money in the same account during marriage is community property subject to equal division.
QDROs – Qualified Domestic Relations Orders
The divorce settlement determines how to divide the marital property. To facilitate the division of a retirement account, a QDRO (Qualified Domestic Relations Order) must be prepared and served on the administrator of the retirement plan so that the community portion belonging to the Non-Participant spouse can be disbursed at the time the Participant spouse retires. If the couple has more than one retirement account to divide, a separate QDRO may be needed on each retirement account.
There are several options for withdrawing these funds:
• Take the cash and pay taxes plus a 10% withdrawal fee (for spouses under 59 ½ years old)
• Defer the funds to avoid penalties and taxes
• Transfer funds to a separate retirement account
When it comes to determining an equitable division of assets, splitting retirement savings is a complex task. Creating an inventory of marital assets can help the process go more smoothly.
Peaceful Divorce Solutions
Going through a divorce is difficult for both spouses. Couples divorcing later in life typically have retirement accounts that each spouse has a stake in and that will need to be divided. Divorce Mediation or Collaborative Divorce can provide peaceful solutions that are fair to both parties. These processes have many advantages that make them preferable to a long drawn-out battle in court. Contact Kim Mediation & Law to discuss the benefits of Mediated Divorce or Collaborative Divorce in California.