Making Sense of Pensions and Retirement Accounts in a Divorce

Dissolving a marriage is already a complex process, but when retirement accounts and pensions must be considered, negotiating property division can complicate things more. The classification of the plan as community or separate property will determine whether it needs to be split between the spouses. However, instead of having these accounts divided equally, the spouses can negotiate an alternate arrangement both agree is fair and reasonable.

To speak with one of our Los Angeles attorneys about your case, call Claery & Hammond, LLP at (310) 817-6904 or contact us online today.

Overview of Retirement Accounts and Pensions

When a divorcing couple is faced with the division of assets, retirement accounts and pensions can be significant financial factors. These plans can be divided like any other community property, meaning they must be split between the two spouses.

Common pensions and retirement accounts include:

  • Employee benefits plans,
  • Defined benefits plans, such as 401(k)s and 403(b)s,
  • State and federal retirement plans, and
  • IRAs

Factors that Must Be Considered When Dividing Retirements and Pensions

In a divorce, special consideration must be given to retirement accounts and pensions. Even if only one spouse contributed to the plan, both parties might still have a stake. Whether the non-paying spouse is entitled to receive benefits depends on when the participant spouse made payments.

Funds are considered community property if the participant spouse contributed to the plan during the marriage. California law divides community property equally between spouses, meaning they would receive a 50/50 split of the account.

In contrast, separate property stays with the spouse who owned or earned it. Separate property is anything acquired before the marriage and after separation. Thus, if the participant spouse made contributions to a retirement account or pension during these periods, the non-participant spouse would not receive any part of it.

Complicating matters is that retirement accounts and pensions can be community and separate property. This can happen when the participant spouse made payments before the marriage, during the marriage, and after separation. The same property division laws still apply (community property is split equally, and separate property is kept by one spouse). This means the plans must be carefully scrutinized, sometimes by an expert like a financial analyst, to determine which part of the account can be divided and which remains intact.

Receiving Retirement and Pension Benefits

For retirement accounts and pensions considered community property to be split between spouses, a qualified domestic relations order (QDRO) must be submitted. The QDRO acknowledges the non-participant spouse’s right to benefits under the plan and authorizes the administrator to list the non-participant spouse as an alternate payee. It also specifies what percentage of the payments should go to each party.

Obtaining the QDRO in a divorce is imperative in ensuring that pension rights are secure and both sides have access to their share of the benefits. Without the document, the plan administrator has no obligation to divide the funds in the account.

Mistakes to Avoid When Dealing with Retirements and Pensions

Because of the financial impact of dividing retirement accounts and pensions, these assets must be appropriately addressed in a divorce. If they aren’t handled right, one spouse may be disadvantaged.

Common errors include the following:

  • Not correctly analyzing the value of the accounts
  • Not having a thorough understanding of the tax implications when dividing or cashing out funds
  • Failing to investigate and disclose all existing retirement accounts and pensions

Taking measures to avoid these mistakes can safeguard each spouse’s financial security.

Negotiating the Division of Retirement Accounts and Assets Between Spouses

Although the court may divide retirements and pensions 50/50, the spouses can work together to establish a different arrangement. This often requires complex negotiations to ensure that solutions are fair.

Alternative arrangements that could be made include:

  • Each spouse maintains their own retirements and pensions
  • Creating a balanced exchange of assets of equivalent value, allowing the account to stay in one spouse’s possession

Planning and being open to compromise can enable the spouses to reach amicable and just resolutions.

Consult with an Attorney Today

Considering the various factors that go into dividing pensions and retirements in a divorce, consulting with a professional before making any decisions can be beneficial. An experienced family law lawyer can help you understand your options and negotiate a fair division of assets with your spouse.

Schedule a consultation with Claery & Hammond, LLP to learn how we may be able to assist in your Los Angeles case. Call (310) 817-6904 or submit an online contact form today.