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How retirement assets are divided during a divorce

On Behalf of | Jan 19, 2022 | High Net Worth Divorce

California law states that community property acquired during a marriage is evenly split 50-50 during a divorce.

This equal division of property does not extend to retirement assets. The division of retirement assets happens through a qualified domestic relations order.

Why are retirement assets handled differently than other assets?

For a shared property like real estate or vehicles, it is a reasonably straightforward process to sell the property and then evenly split the funds. The same goes for evenly divided bank accounts. When it comes to retirement accounts, draining or liquidating a retirement account comes with steep penalties for early withdrawal. And, you must pay income tax on any withdrawal from a retirement account.

What is a qualified domestic relations order?

A qualified domestic relations order is a court order that demands a portion of a retirement plan gets assigned to or paid to another person for the purpose of child support, alimony or marital property rights. This court order establishes that a dollar amount or a certain percentage of the account belongs to the spouse. It also determines the number of payments or length of time the order applies. A qualified domestic relations order can apply to any retirement account covered by the Employee Retirement Income Security Act. It also must not violate any of the rules of the retirement plan.

Regardless of your age or the length of your marriage at the time of your divorce, it is important to consider your financial future moving forward. Educate yourself about all of your shared assets, including retirement accounts, so that you may assert your rights to your share.

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