What one asset do many divorcing couples have that may be worth more than their stocks, their cars, or even their house? In many cases, it’s a retirement account. California is a community-property state: meaning that in a divorce, assets are divided in half—including IRAs, SEP IRAs, Roth IRAs, 401(k) 403 plans, Keoghs and other pension plans. However, what percentage of that is actually community property?
When Did You Start Your Retirement Account?
If you started contributing to a retirement plan when you were already married, then it is entirely community property as it was acquired during marriage and will be divided equally. If you already had a plan in place before you got married, then the retirement account will be subject to the Time Rule Formula.
In its simplest terms, the amount you contributed prior to your marriage, including what may have been contributed by your employer, is not included in the settlement. For example, say you started an IRA when they first became available in 1975 and have contributed every year since then. However, you didn’t get married until 1985. Your spouse would be entitled only to the value of the portion to which you donated from the date of your marriage in 1985.
You do have options: You may choose to negotiate a settlement in which the entire retirement account is ceded to the spouse in exchange for something else. For instance, they get the retirement plan and you get to keep the house. If you are not yet near retirement age, you and your spouse may decide to hold off on taking any distributions until you reach 59-1/2 years of age to avoid the severe tax penalties for early distribution. You may also choose to transfer funds to another retirement account. If so, be careful as this may smack of asset distribution and should only be done after the divorce is finalized.
Questions About QDROs
A QDRO, or Qualified Domestic Relations Order, is separate from the divorce proceedings. It is automatically required for most California state and federal government retirement plans, including CalPERS and University of California Retirement System plans, the Federal Employment Retirement System and the federal Civil Service Retirement System, and plans that fall under ERISA (the Employee Retirement Income Security Act).
QDROs involve a third-party administrator since the plan administrator is legally bound to distribute payments in accordance with your retirement plan. When there is a deviation from those requirements, the plan administrator needs a court order to proceed. Hence, the QDRO gives the administrator that legal permission.
Military pensions and Tier I Railroad Retirement System benefits are not subject to QDRO.
Our California Divorce Attorney can Help You with Your Concerns Regarding Retirement Assets
For additional information, please call Giuliano Law and speak with a divorce lawyer in Monterey at (831) 372-4003 or contact us online. We will be happy to schedule a consultation to address your concerns.