When spouses decide to move forward with the divorce process, it is not only a hugely emotional experience, but one that involves major financial challenges as they unlink their lives. Part of this includes the division of retirement accounts, which can be a complicated process in some cases. Whatever your circumstances might be, it would be wise to consult a skilled divorce attorney to make sure no costly mistakes are made.
Dividing Retirement Benefits
In a divorce, retirement benefits are some of the most valued assets and, for some, it is possibly worth more than the marital home or the combined total of other community property assets a couple might have. As such, accurately calculating retirement benefits is an immensely important part of asset division. Accrued or vested retirement benefits are considered community property and, in California, all community property is to be divided 50/50 between spouses. Since spouses might have had their retirement accounts prior to marriage, only the benefits accrued after marriage would be deemed community property.
Retirement benefits that commonly end up on the chopping block include military pensions, veteran’s educational benefits, ERISA funds, IRAs, Keoghs, 401k and 403 plans, Employee Stock Option Plans, and defined benefit plans. However, social security payments, compensation for military injuries, and workers’ compensation awards are generally not classified as community property and are therefore not subject to division.
The Process of Division
The process of dividing retirement plans is usually separate from divorce proceedings and requires other forms, such as a Qualified Domestic Relations Order (QDRO), to be filed with the court. A QDRO is not filed until after a divorce judgment is entered, describing how the retirement plan will be divided. It essentially outlines how the assets are to be distributed to each party.
Although all community property is generally divided 50/50, it is possible for both parties to agree to something different, assigning a different division percentage amongst themselves. Regardless of how both parties agree to divide retirement benefits, the QDRO must reflect the marital settlement agreement.
A QDRO is necessary for the following retirement benefits:
- 401k or 403b plans
- Thrifty savings plans
- Profit-sharing plans
- Employee stock ownership plans
- Tax sheltered annuities
There are some circumstances in which a QDRO might not be necessary. The spouse without a retirement plan could receive a present value cash-out of the plan in its entirety. In such cases, pension actuaries are hired to calculate the value of the retirement plan.
Other Methods for Dividing Retirement Plans
Instead of dividing retirement plans, spouses can choose to take their own retirement contribution and waive the right to their spouse’s retirement. If each spouse has a 401k account and both are similar in value, they can agree to simply keep their own accounts instead of going through the trouble of dividing them in half. Additionally, one party can be awarded a larger share of other community property if one spouse has a more valuable retirement account and they agree not to divide it.
Experienced Rocklin Divorce Attorneys
At the Law Offices of Keegan & Myers PC, our Rocklin divorce attorneys are proud of our extensive experience in all aspects of family law in Placer County and Sacramento. We understand the difficulties often associated with contentious matters, including the division of property and assets. We have the knowledge and skills necessary to represent you in the most compassionate, caring, and professional manner.
Get started on your case today and call the Law Offices of Keegan & Myers at (916) 634-0067 to discuss your rights when it comes to property division. Schedule your free 30-minutes consultation today!