Divorce introduces many complex financial decisions, and the division of retirement assets ranks among the most significant. This is especially true in California, a community property state, where the law requires an equal division of all assets and debts acquired during the marriage.
Under California law, retirement assets accumulated during the marriage become part of the marital estate and are subject to equal division during divorce proceedings. But how does this work, and what should divorcing individuals in California know?
Community property and retirement assets
In California, any money contributed to retirement accounts during the marriage falls under the umbrella of community property. This includes 401(k)s, IRAs, pensions and other retirement savings vehicles. Both spouses have an equal right to these assets during a divorce.
Assets acquired before marriage
Money contributed to retirement accounts before the marriage, however, generally remains the separate property of the contributing spouse. However, any interest or appreciation that these pre-marital assets earn during the marriage may qualify as community property.
Retirement asset division
Dividing retirement assets during a divorce requires a specialized order called a Qualified Domestic Relations Order. This document, once approved by the court and the plan administrator, provides the legal basis for dividing retirement assets without incurring penalties or additional taxes.
Possible future value
When splitting retirement assets, divorcing couples should also consider the future value of these assets. A pension that has not begun paying out might not seem valuable now, but it could significantly impact the receiving spouse’s financial future.
Spousal agreement
California law allows spouses to reach an agreement about the division of property, including retirement assets, that differs from an equal split. In these cases, the spouses can negotiate a settlement that the court will review and may approve.
Dividing retirement assets in a California divorce involves complex legal and financial considerations. Understanding these basics can help divorcing individuals navigate this difficult process.
