Don’t rush retirement decisions during property division

Approaching divorce and retirement at the same time? For those in California who are dealing with this situation, the future may feel uncertain. Most people know that there are usually penalties and taxes associated with early withdrawals from retirement accounts, but this can be avoided during property division through careful attention to detail.

Before pulling funds from any accounts, couples must first deal with property division. In the absence of a prenuptial agreement, this involves determining which assets are separate and which are community property, and then dividing the community property according to California family laws. This means that if a retirement account is community property — and many are — then it will probably be split 50/50 between both parties.

Once all decisions regarding property division are concluded, it is still too early to begin moving money out of accounts. Individuals need a Qualified Domestic Relations Order to safely withdraw funds without incurring any type of steep financial penalties. A QDRO must be signed by a judge and then sent to the administrator of a 401(k) or pension plan, who must approve it prior to anyone making any withdrawals. It is a good idea for divorcing couples to familiarize themselves with their plan’s rules to avoid any delays in this process.

Rushing financial decisions rarely ends well, and this is especially true during divorce. Rather than try to divide community assets on their own or make withdrawals before receiving official approval for a QDRO, California couples should be rigorous in attending to the details of their divorce. This is particularly important during property division, when understanding the correct value of all community assets can ensure that both parties receive their correct share of property.

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