Divorce is a tough time for anyone. It is an emotional and stressful process that takes a toll on you and your family. One of the major concerns during a divorce is how your assets will be divided, including your retirement accounts. California is a community property state, meaning anything earned or purchased during the marriage counts as shared property, including retirement accounts.
How Retirement Accounts Are Divided in a Divorce
If spouses save money in retirement accounts during the marriage, those savings will likely be considered marital property in the divorce. For this reason, retirement accounts might need to be divided between spouses so that they can share the wealth equally. In California, retirement accounts, such as 401(k)s, IRAs, and pensions, are subject to division during the divorce process.
However, the specific rules around dividing retirement accounts can be complicated, so it is best to work with an experienced divorce attorney. Generally, the court will assign ownership interests to each spouse. If one spouse has significantly more assets in their retirement account, the court may order them to compensate the other spouse financially or by giving them a different asset of equal value.
Protecting Your Retirement Savings
To protect your retirement savings during a divorce, you must do everything possible to ensure your accounts are categorized as separate property. If you have inherited retirement accounts, such as an IRA, and kept them solely in your name, they will not be considered marital property. Similarly, if you had a retirement account before marriage, that account can also be regarded as separate property.
Another way to protect your retirement savings is by creating a pre- or postnuptial agreement. These agreements outline how assets will be distributed in case of divorce and can be especially valuable if you have a lot of assets or own a business. In addition, if you contributed to a retirement account before the marriage, you can argue that those contributions should be considered separate property.
Tax Consequences of Dividing Retirement Accounts
It is essential to understand the tax implications of dividing retirement accounts. A 401(k) or IRA division during a divorce will usually be considered a tax-free transfer if done correctly. The proper paperwork should be filed with your plan administrator to ensure the money is correctly distributed to the other spouse. However, taxes and penalties may apply if the funds are withdrawn from the account and then divided.
Deeper Understanding. Better Solutions.
Divorce is a difficult time for anyone, but it is essential to understand how your retirement accounts may be impacted during the process. Our attorney can help you navigate the asset division process and secure your financial future. Call us today at (951) 418-2770 to request your consultation.