How Are Retirement Accounts Divided in a Divorce?

The division of community property in a California divorce is complicated and has the potential to be one of the most contentious terms of your divorce. If you, your divorcing spouse, or both of you have retirement accounts, the matter can be that much more challenging. Better understanding how retirement accounts are addressed in divorce, however, can help, and working closely with an experienced California divorce attorney is also well advised. 

Community Property vs. Separate Property

Generally, anything that you come to own while you are married is considered community property in the State of California, and community property must be divided between both spouses equally in the event of divorce. This means that if the retirement account or accounts in question were initiated while you were married, the total value of each account is very likely to be community property and will be treated just like any other community property upon divorce. Often, however, spouses already have retirement accounts in the works when they marry, and this complicates things. Consider the following:

• Those assets that either spouse brings with him or her into the marriage and keeps separate throughout remain that spouse’s separate property.
• Any increase in the value of separate property, however, is considered marital.

This is especially relevant for assets like retirement accounts, which typically increase significantly in value over time. The amount that the retirement accounts involved in your divorce have increased in value since the time of your marriage will need to be addressed in the division of your community property. 

The Account’s Increase in Value

Calculating the amount that the retirement account in question has increased in value is critical to your ability to fairly address the matter in your divorce. Dividing a retirement account upon divorce is generally not an effective means of addressing the issue due to the significant tax implications and penalties associated with early withdrawals. The division of retirement accounts in divorce tend to be addressed in one of the following ways:

• If you and your spouse both have retirement accounts, one means of division involves each of you keeping your own account (and splitting the difference between their values if there is one). 
• If there are enough marital assets to offset the value of the retirement account, the division can be addressed by awarding these assets to the non-owner spouse. 
• The court has tools that are known as Qualified Domestic Relations Orders (QDROs) and Domestic Relations Orders (DROs) that assign a spouse ownership of the benefits that flow from his or her divorcing spouse’s retirement account. 

You Need an Experienced California Divorce Attorney in Your Corner

The savvy California divorce attorneys at Miranda, Magden & Miranda, LLP, understand how important a fair division of your marital assets is to your financial future and are well prepared to help you knowledgeably address all such assets, including any retirement accounts. Your financial rights are important, so please do not delay contacting us for more information today.