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Divorce and your retirement accounts

It feels good to know you have a solid plan for retirement. At your job, you have taken advantage of every opportunity to contribute to the accounts and other options the company has provided you, and when you leave, you and your spouse will be well off in your golden years.

But now, out of the blue, your spouse wants a divorce. What happens to your retirement?

Community property

California is a community property state, so a judge will attempt to make your settlement equal. You and your spouse will each end up with half of everything you both own, regardless of whose name is on the account or title. This means your spouse will probably receive half of your retirement.

Types of retirement benefits

The American Bar Association explains there are some types of benefits you may have that are exempt from community property. These include Social Security benefits, workers' compensation awards and military injury compensation. The following are subject to division, though:

  • Pensions (including those from the military)
  • 401(k) and 403(k) plans
  • IRAs
  • Employee stock ownership plans
  • Employee Retirement Income Security Act funds
  • Keogh plans

The QDRO

Your spouse will probably have an attorney complete and file the paperwork for a qualified domestic relations order. This legal judgment will define the distribution and other effects on your retirement accounts when your spouse receives the benefits. He or she becomes an alternate payee, but the plan may not provide benefits until you actually reach retirement age, or until the time when you first qualify for a distribution. 

The costs associated with having the QDRO drafted and filed, and any processing fees that may apply, will be the responsibility of your spouse and will come out of his or her portion of the benefits. Depending on the type of account, you may not suffer any penalties when your spouse's part of the benefits comes out of your account. You may also avoid taxes for early withdrawal. 

Pension

California does not treat pensions the same as other types of retirement accounts, and the state requires special paperwork, as well as a QDRO. The judge may need the plan to become a party in your case so that he or she can issue an order for its division.

Because different types of accounts have different rules, it is a good idea to seek the assistance of a divorce attorney who has experience handling high-asset cases.

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