While the divorce process can have an impact on morale, it can also affect one’s financial situation. For couples going through a divorce in California, it is important to understand how retirement accounts are treated during the division of assets. In this month’s blog, we shed light on what happens to retirement accounts in a California divorce and provide valuable insight for individuals navigating this type of settlement.
Dividing Retirement Funds
In California, retirement funds acquired during the marriage are generally considered community property, subject to division between spouses. This includes various types of retirement accounts such as 401(k)s, IRAs, and other employer-sponsored plans.
Suppose a divorcing spouse opened a retirement account before the marriage. In that case, they might be able to claim they are premarital deposits to the account as a separate, non-marital party. California law also treats interest earned on pre-marital contributions to a retirement plan as separate property.
Qualified Domestic Relations Order (QDRO)
To divide retirement funds, a court-approved document called a Qualified Domestic Relations Order (QDRO) is required. A QDRO is a special type of court order, and it is required regardless of whether you and your spouse settle your divorce amicably or take your differences to trial.
However, you will need a QDRO if you’re trying to divide the following types of plans:
- State government plans, including California Public Employees’ Retirement System (CalPERS), California State Teachers’ Retirement System (CalSTRS), and University of California Retirement System (UCRS) plans.
- Federal government plans, including Civil Service Retirement System (CSRS), Federal Employees Retirement System (FERS), and Foreign Service Pension System (FSPS) plans.
It is crucial to work with an experienced divorce attorney who can properly draft and execute a QDRO to ensure a smooth division of retirement assets.
Related: Learn more about how to choose the right divorce lawyer here.
Tax Implications and Penalties
It is important to be aware of the potential tax implications and penalties associated with dividing retirement funds during a divorce. According to Section 408(d)(6) of the Internal Revenue Code, transfers of retirement funds are generally tax-free. However, withdrawals made by the non-employee spouse before retirement age may incur taxes and penalties.
Schedule An Appointment with Family Law Richard E. Young & Associates
At Family Law Richard E. Young & Associates, we serve the community Lake Forest, CA, and are exclusively devoted to family law. We customize solutions based on the needs of each client. We are experts in cases involving divorce, child custody, and more. Contact us at (949) 951-9529 or visit our website to schedule a consultation and let us ensure that your rights are protected, including a fair division of assets.