Dividing Retirement Accounts in Divorce: Avoiding Costly Mistakes
Retirement accounts may be in one spouse’s name, but in California, community property rules apply not only to physical assets such as cars and homes, but to 401(k)s, pensions, and other retirement accounts as well. This means that divorcing couples should expect that these assets will be divided between the couple, and this should be approached with careful planning.
How Retirement Accounts Are Divided in Divorce
Properly dividing retirement accounts often requires extra steps if you want to avoid tax consequences tied to early withdrawals. These penalties can be significant percentages of what is withdrawn, so it is critical to proceed within the set procedures in order to avoid extra costs when you can.
As mentioned above, retirement funds, even if accumulated by only one spouse, or in one spouse’s name, are subject to division in a California divorce if it is community property.
Division of retirement assets will primarily depend on the character of the account (is it community or separate property?), and the type of account at play and the value (is it an IRA? 401(k)? Pension?)Spouses may choose to agree to a settlement where some accounts stay in their own name, some are split, or one’s interest in an account might be exchanged for an equivalent value (whether monetary or sentimental) in another marital asset. If the spouses are unable to come to an agreement, the court will typically order that the community property retirement assets are divided equally.
Steps for Dividing Retirement Funds
The proper legal procedures to split retirement funds will depend on the types of accounts in play. There are diverse rules specific to different retirement accounts. For instance, there are retirement accounts that are covered by the “Employment Retirement Income Security Act” (ERISA) which require specific documents like a Qualified Domestic Relations Order to transfer value to a spouse not already named on the plan. An attorney can help you manage any division that is necessary and help you ensure proper legal procedures for division are met to avoid unnecessary fees and penatlies.
Contact Cardwell Steigerwald Young LLP
Unraveling the division of a retirement account can be complex depending on the type of retirement account. An experienced San Francisco retirement and pension division attorney at Cardwell Steigerwald Young LLP can provide the guidance you need to obtain a fair settlement, and help you to avoid unnecessary fees and penalties. Contact our office today to begin working with our team.
Source:
irs.gov/retirement-plans/plan-participant-employee/retirement-topics-divorce
