The marital home is fast becoming the second largest asset in marital breakups. It is being replaced by a couple’s retirement assets.
This is understandable in today’s economy and with life spans extending longer than in the past. However, how do two people share what was meant to see one household into the future comfortably?
And, how do you protect an asset you worked diligently to accumulate over the years?
The following offers tips on protecting your retirement funds during a divorce in California in light of the state’s community property laws.
What are Retirement Funds in a California divorce?
Retirement funds in a California divorce cover many savings programs and benefits plans in today’s retirement market.
- Any IRA’s;
- 401(k) and 403 plans;
- Defined benefit and defined contribution plans;
- Military pensions;
- Veteran’s educational benefits;
- ERISA funds;
- Keoghs; and
- Employee Stock Option Plans.
Social security, workers’ compensation disability payments, and military injury compensation are not treated as marital retirement funds and are divisible as community property in California.
Retirement Funds are Community Property in California
Retirement funds are considered community property in California, and the court will divide them as such in the event of a divorce. This could mean retirement funds are subject to an even or 50/50 division between spouses.
A property settlement between the spouses may be a better choice for appropriating certain retirement funds, and discussed later in this article.
California Typically Follows the Time-Rule Formula
California typically follows the time-rule formula for dividing retirement funds in a divorce. This formula categorizes retirement funds as either community property or separate property. Separate property means belonging solely to the spouse who earned the retirement asset.
The time-rule formula uses a ratio of time in a retirement plan during a marriage vs. total time in a retirement plan to produce a percentage owed to the other spouse of a retirement fund. For instance, if a participant spouse were married for twenty years but participated in a retirement plan for forty years (20/40), the other spouse would qualify for 1/2 or 50% of the funds accumulated in the plan.
Alternatives to Dividing Retirement Funds in California
As mentioned before, the marital home is often the next largest marital asset. This makes the house a bargaining tool in property division. To keep any retirement funds intact, the retirement plan holder may offer their spouse the marital home.
Before proposing this option, consider any delays or tax penalties a hasty home sale could incur. If both spouses have retirement accounts, consider supplementing the lesser of the two monetarily or with marital property and keeping both intact. Or, a life insurance policy with the lesser-heeled spouse as a beneficiary may also be an option.
The takeaway is knowing there are alternatives to dividing retirement funds in California. However, be aware of any plan guidelines, penalties, and options before making suggestions to your spouse, and always consult an experienced California divorce attorney when considering legal action.
Speak with an Experienced California Divorce Attorney Today
Do not make a financial mistake when dividing your retirement funds from which you may not be able to recover. Contact the divorce professionals at Moradi Saslaw for practical advice you can rely on now and well into your financial future.
At Moradi Saslaw, we are successful and proven in maintaining retirement funds and ensuring any legal division of these assets is accurate and a sound choice for the spouses involved. Do not try to negotiate a settlement without knowing and understanding the effect of California’s community property laws on your circumstances. Call Moradi Saslaw and schedule a confidential consultation today.