In a divorce, you may be worried about who gets the house, the living room furniture or the shared family vehicle. But many divorcees overlook one of the most important assets they have: retirement benefits.
If your spouse has a pension or other retirement plan, you may be entitled to at least some of those retirement assets in divorce.
Retirement Plans And Divorce: Doing The Math
California is a community property state, which means that assets acquired during the marriage are generally considered jointly owned and therefore divisible. Contributions to a retirement account during marriage give rise to a community property interest in the contributions during marriage (until separation) and appreciation thereon (up to the date of division, not just date of separation). This is true for IRAs, 401k accounts and other deferred compensation.
Maintaining historical records for such accounts since date of marriage can be vital to the “tracing” process that is used to calculate the community and separate property interests in a mixed retirement asset. The separate property share of deferred compensation is usually confirmed to the employee spouse and the community share is usually divided equally between spouses – by agreement or at trial.
Pension plans are different in that benefits are based on years of service credits, rather than dollars contributed and appreciated. But, the division concept is similar: the community gets its respective share of the asset value. The parties split the community interest, and the separate property interest from pre-marriage and post-separation employment belong to the employee spouse. A “time-rule” is used to determine the percentage of community interest in a pension plan. Specifically, the ratio of the years of service earned during the marriage, divided by the total years to earn the benefits, is applied to the monthly benefit at retirement age and allocated accordingly between the parties. There are many other details relating to pension benefits, such as survivor benefits, who will bear the cost thereof, and shared versus segregated benefit accounts, to be considered and addressed in the court orders.
A special order called a qualified domestic relations order (“QDRO”) is prepared and served on the retirement plan after the divorce judgment to instruct the plan to divide the benefits paid at retirement via the time rule, or to divide the 401K account based upon the respective shares of account value. These orders are not standard forms, and they need to be carefully drafted to ensure that your interests are protected. Therefore, it’s important to seek the help of an experienced attorney to ensure that you receive the share that belongs to you.
An Attorney Solving Complex Financial Issues
I am attorney Linda D. States, and I have over 2 decades of experience in family law. One of my strengths in this area of law is helping clients clarify and resolve complex financial issues, including those related to dividing retirement benefits in divorce.
I know which measures to take to protect client interests, including joining retirement plans. And if a certain issue can most appropriately be addressed by an outside expert, I will refer clients to those experts to ensure that the issue is resolved in the most beneficial way possible.
Help Is Just A Phone Call Away
States Family Law is located in Sacramento and serves clients throughout the area. To learn how I can protect your financial future in divorce, call me at 916-696-2425 or fill out my online contact form.