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What a California divorce means for retirement savings

On Behalf of | Aug 6, 2023 | Community Property Division

Married couples plan their finances based on the income and needs of both spouses. Sharing financial resources allows a family to afford “more house” when purchasing real estate and can also affect how often the family goes on vacation and what schools children can afford during their college years.

Couples tend to plan their retirement savings based on their combined income and the costs of sharing a household, and they are compelled to adjust those plans when if decide to divorce. Due to the high-stakes nature of this situation, retirement savings are often a major point of contention in divorces if spouses do not already have a marital agreement on record.

Couples need to divide (or at least account for) retirement savings

The rule for property division if couples don’t reach a mutual agreement out of court in California is that they must split their community or marital property. However, people often misunderstand what community property means for a married couple. People assume community property results in a 50/50 split of all assets, but that is not a guaranteed outcome.

A California family law judge has to consider a family’s circumstances when dividing assets. They may not always split the property evenly. There are also many cases in which the retirement account isn’t entirely marital property. Judges may exclude amounts contributed before the marriage or after the initial separation from the property division process. The judge could order the actual division of the account or simply reference the value of the marital share of the retirement account in their broader property division decisions.

Those worried about retiring can protect their interests

There are several useful strategies that those concerned about the division of their retirement accounts can utilize during a divorce. Many people find it worthwhile to make concessions in other property division matters to retain sole control over their retirement savings or pension. Those who do divide an account with their spouse can use a qualified domestic relations order (QDRO) to protect their retirement savings from penalties, taxes and fees that early withdrawal before retirement age might otherwise trigger.

Focusing on the assets that matter the most and seeking legal guidance to better understand California state law can make it easier for people to negotiate reasonable solutions when they decide to divorce.