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Plan to split retirement funds during divorce

For many California couples, their retirement funds are among the largest assets they have. Built up over many years, these accounts can be a major part of the property division process for people who decide to divorce. Many couples have a variety of different retirement funds, including accounts held through each employer or private options like individual retirement accounts. No matter whose name these funds are held in, they are typically considered marital property. If people had their accounts before they married, it may be important to calculate the growth of the asset after the date of marriage.

Some people may decide to walk away with their own accounts intact, especially if both spouses already have roughly equal amounts in retirement funds in their own names. In other cases, people may negotiate to exchange a share of a retirement fund for other property in the divorce, such as the marital home. When people do need to split their retirement funds, it is important to remain aware of tax laws in order to avoid potential penalties.

Employment-based accounts like 401(k)s or pension plans have their own guidelines, and these accounts are protected by the Employment Income and Retirement Security Act. As “qualified” plans, they require a special court order called a Qualified Domestic Relations Order for them to be divided. On the other hand, IRAs can be divided with only the divorce decree. However, while there is no tax penalty for a division on divorce, recipients must roll the funds into their own retirement accounts to avoid a hefty fee.

The financial consequences of a high-asset divorce can linger on long after the emotional issues have been handled. A family law attorney may work with a client to reach a fair agreement on property division and other legal matters.

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Joseph R. Zoucha, Attorney & Counselor at Law
520 Warren Street
Redwood City, CA 94063

Phone: 650-381-9591
Fax: 650-261-9650
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