Dividing 401(k) Plans and Other Retirement Plans in a California Divorce
Dividing 401(k) Retirement Plans
After the house, the spouses’ retirement plans are often the most valuable assets of the marriage. Under California’s community property rules, retirement plans — like all assets of the marriage — must be divided in half. For 401(k) and other pension plans, this means that the non-participant spouse shall receive 50 percent of the value of the retirement plan accrued during the length of the marriage. This rule applies equally to employment-based retirement plans such as simple IRAs and SEP-IRAs, retirement plans funded by family-owned businesses and private employment plans like traditional IRAs and Roth IRAs.
In the following example, only one spouse worked during the course of the marriage. The working spouse with a 401(k) plan worked a total of 1200 months, 800 months of which were during the course of the marriage. Eight hundred months is two-thirds of 1200 months. Thus, the nonworking spouse would be entitled to 50 percent of two-thirds the value of the 401(k) plan.
Dividing retirement plans during a divorce can be simple or complicated, depending on the spouses’ wishes and willingness to negotiate a compromise. At Schwartzberg | Luther, APC, we have served the family law needs of our community for more than 10 years. Our office has advanced knowledge of California’s property division laws and of how to protect your financial interests and rights to the proper share of a retirement plan.
Options for Dividing a Retirement Plan
There are two main options for dividing a retirement plan during a divorce. The spouses may agree (or a court may order) that the nonparticipant spouse will receive his or her pay-out when the participant spouse does, upon retirement. Alternately, the spouses may agree (or a court may order) to assign the entire value of the retirement plan to one spouse and grant other community property to the nonparticipant spouse.
Each option has advantages and disadvantages in terms of tax consequences, valuation of the future value of the retirement plan or plans and evaluation of the financial risks of relying on future payment when the retirement plan is not in payment status.
We provide each client with a clear explanation of California’s community property rules as they apply to retirement plans and help our clients choose the best negotiating stance. We have full understanding of the sometimes complex technical requirements for dividing retirement plans, such as writing Qualified Domestic Relations Orders that satisfy the Employee Retirement Income Security Act of 1974 (ERISA).
A stable financial future is one of the most important goals during the divorce process. Choose a divorce lawyer who will take the necessary time to develop a holistic property division plan that considers all community property. We will create proposals for you that result in a property division agreement that best meets your needs.
We understand that you will have many questions for our attorneys so we are here to give you honest answers. The Law Office of Schwartzberg | Luther, APC, is located in Ontario, CA and offers weekend and evening appointments throughout the Inland Empire when necessary, we are here to help. Contact us to schedule a legal consultation at 909-457-4270 or fill out our online contact form and schedule your free consultation today.