One of the most valuable assets possessed by spouses is their retirement savings. While 401K plans are treated much the same as other marital assets in a California divorce, there are factors to take into account when dividing these assets accurately.
The following provides some general considerations and rules applicable to California property division, including 401K plans and pensions. For case-specific information, seek the advice of an experienced Los Angeles divorce lawyer in your area.
California is a Community Property State
California is a community property state. This means that assets obtained during the marriage are divided in half upon divorce, including retirement savings and pension plans. In the case of a 401K or another type of plan, a spouse is entitled to 50% of the plan’s acquired value during the course of the marriage.
Any value accrued within a 401K or another plan a spouse possessed prior to marriage is that spouse’s separate property. It is not included in the calculation when dividing the marital portion.
There are instances where community property and separate property become mixed or “commingled.” When this happens, a forensic accountant may be necessary to separate community property value from a spouse’s separate property value.
Strategies for Dividing 401K Plans in a California Divorce
While splitting property in half per California law sounds easy, dividing a 401K plan can take substantial planning and expert advice. There are typical approaches spouses take depending on their plan specifics and future tax consequences.
Spouses may do any of the following:
- Elect to receive their payouts when the plan holder cashes in the plan;
- One spouse may choose to receive property of equivalent value in lieu of their estimated half of the plan value; or
- Choose to divide the plan using a Qualified Domestic Relations Order (QDRO) at the time of divorce.
Leaving the plan intact is often the easiest and safest solution for spouses who can do so. Spouses who choose to divide a 401K plan by QDRO often need the assistance of an experienced attorney to help the process go smoothly.
Avoid Unnecessary Penalties for Early Withdrawals
If you are preparing for a divorce, except in cases of undue financial hardship, avoid unnecessary penalties caused by taking early withdrawals from your retirement savings. Taxes can be steep for doing so, and the court may view any deductions from retirement accounts as an advance on your share of community property.
Contact an Experienced Attorney Today
If you would like to discuss California’s laws regarding the division of assets in a divorce, contact the experienced and knowledgeable attorneys at Fernandez & Karney. One of our attorneys will gladly meet with you to discuss the impact of community property law and the potential impact on your retirement savings.
You worked hard to secure your financial future. Call the legal team that will ensure any distribution of your retirement account is accurate and to your best advantage.