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How does California divide retirement savings in divorce?

On Behalf of | Jun 18, 2020 | Firm News |

Individuals considering divorce likely have concerns about how the court will divide retirement savings accrued over a long career. Because California is a community property state, couples must divide these assets evenly with a legal qualified domestic relations order. 

Explore the process of getting a QDRO as you negotiate property division with your estranged spouse. 

Understanding marital vs. separate property 

Pension plans, individual retirement accounts and defined contribution employer plans all constitute marital property in California. In limited circumstances, state courts consider a retirement account separate property. For example, if you opened your retirement account before marriage, the value of the account prior to marriage falls into the category of separate property. Interest earned on the premarital amount during the marriage also remains separate property. 

Couples can also designate certain items as separate or marital property. However, they must document this arrangement in a written contract signed by both parties, such as a premarital agreement. 

Obtaining a QDRO 

Once the judge determines fair property division in your divorce case, both spouses must abide by these orders. In the case of retirement accounts, the court will issue a QDRO. The owner of the plan must send this document to the plan administrator, which allows them to release a percentage of the funds to the other spouse. You must have a separate QDRO for each divisible account. 

The person receiving the distribution can either: 

  • Receive cash, which is subject to taxes and a 10% withdrawal penalty for those younger than 59 1/2 
  • Defer the funds until retirement to avoid taxes and penalties 
  • Request a transfer to his or her own retirement account 

Dividing retirement savings can be quite complex, especially when both parties have accounts and some contributions date before the marriage. Comprehensive inventory and valuation of marital assets will help inform a property division arrangement that meets California court approval. In some cases, you can arrange to exchange other property for your spouse’s share of your retirement account.