How are retirement plans handled in a divorce?

On Behalf of | Jul 26, 2021 | Property Division

California couples who are going through a divorce or legal separation may have a lot of money invested in their employer-backed retirement plans.

Because of this, there may be a lot of arguing over how these plans will be divided after a divorce. This is not surprising. A lot is at stake since Riverside residents are usually counting on having their retirement funds available when they are ready to stop working.

Retirement plans can be considered community property subject to division

California is a community property state, which means that marital property will often be split 50-50 between spouses.

It is incumbent on the spouse who wants to hold all or part of her retirement plan separately to prove that she acquired it before marriage.

Whether a retirement plan is community property can be a tricky question.

For example, some plans do not vest until several years after an employee starts working. In these cases, a person may have started adding earnings to a retirement plan prior to his marriage but may not have had an absolute right to all of his funds until after the marriage.

Valuing and dividing up a retirement plan also requires thought and skill

A couple will also have to agree on the value of each retirement plan that will be divided. Depending on the type of plan involved, this can be simple or difficult.

For example, it will likely require a financial expert to put an exact value on a monthly retirement pension that will not get paid until years in the future.

After putting a value on the plan, a couple will have to decide how to divide it fairly, ideally without incurring negative tax consequences.

They may have to prepare a Qualified Domestic Relations Order or come up with another arrangement for making sure that each spouse gets his or her fair share.

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