How Are Pensions Divided in a California Divorce?
Whether you have been married for only a few years or for many decades before a divorce, you and your spouse have likely contributed to your respective retirement savings during your marriage. Given that most property acquired during the marriage will be classified as community property and subject to distribution, you should anticipate that, depending on how much you contributed during the marriage, some or all of your pension and other retirement accounts such as 401(k) or 403(b) accounts will be characterized as community property that must be divided. In a California divorce, property is divided into the two categories of community property and separate property. Generally, any assets acquired after the date of marriage and prior to separation will be considered community property unless the asset is traceable to a separate property source.
As you may know, California is a community property state. What this means is that all community property is divided equally between the spouses. If either you or your spouse has a pension or other retirement accounts, and if you earned any part or contributed to retirement savings during the marriage, that portion, plus the growth or loss associated with that portion, will be divided 50/50 in your divorce unless it is expressly excluded through a premarital agreement. Unlike other forms of community property, there is a specific legal tool through which these assets must be divided known as a Qualified Domestic Relations Order (QDRO).
What is a QDRO?
A QDRO is a specific type of court order that is used in a divorce to divide particular types of retirement accounts without resulting in any early withdrawal fees or taxes.
Without a QDRO, if a party makes an early withdrawal from a pension or other particular types of retirement accounts, that withdrawal will trigger an early withdrawal penalty, which is an additional 10 percent tax on the total amount withdrawn. When a withdrawal is made, tax also must be paid on the amount withdrawn (in addition to that 10 percent penalty, the additional tax, referenced previously). With a QDRO, however, retirement assets can be withdrawn from one spouse’s account and transferred into an account in the other spouse’s name without the withdrawn amount being taxed or triggering the additional 10 percent penalty.
Who Needs a QDRO in a Divorce?
You should anticipate that a QDRO will be necessary to divide any pensions or other retirement funds that are classified as community property in your divorce.
Contact a Divorce Attorney in San Jose, California to Discuss Property Division and Your Retirement Savings
Retirement accounts, including pensions, are a type of asset held by many California residents. This is also a type of property that typically must be divided, at least in part, during a divorce. For the division of most pensions and other types of retirement accounts, you will need to use a QDRO, as we explained above. If you have additional questions, or if you are ready to seek legal help with the wider aspects of your divorce, an experienced San Jose divorce attorney at Foster Hsu, LLP is here to assist you. Contact our firm today to discuss any asset division concerns and to begin working on all other components of your California divorce.
Sources:
law.justia.com/codes/california/code-fam/division-4/part-2/chapter-1/section-761/
irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
