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What will happen to your retirement accounts if you divorce?

On Behalf of | Aug 30, 2023 | Division Of Assets

When you get married, you and your spouse begin planning for your future, including your retirement. But what happens when your retirement plans no longer include each other?

What happens to the money the two of you put aside for retirement? What if only one of you has a retirement account?

California’s division of assets

California is a community property state regarding the division of marital assets. That means any property acquired by either spouse during the marriage is generally considered marital property and should be divided equally during a divorce.

Therefore, any type of individual retirement account, such as IRAs or SEP-IRAs or ones with employer contributions such as pensions, 401(k), or 403(b), is considered marital property, even if only one spouse contributed. However, any portion of the fund started before marriage may be regarded as separate property and not subjected to division.

A retirement account may be divided between divorcing spouses in a couple of ways. Typically, the division is handled through a legal document called a qualified domestic relations order (QDRO), which allows the withdrawal of money from the account without taxes or penalties. Those funds can then be rolled over into another retirement account.

If both spouses have an employer-sponsored retirement account, they would typically each keep their own. But if one account has a much higher value, the judge might require a QDRO. Another option is offsetting the difference with other marital assets.

The property division in a divorce can be complicated, especially when significant retirement assets are involved. Working with someone who can guide you through your options is imperative to ensuring your rights are protected, and you receive fair distribution.