Protecting and dividing retirement savings in property division

Saving for retirement is a lifelong endeavor. Most people in California start out saving early in their careers with the goal of achieving a financially secure retirement. Unfortunately, no matter how well-considered a plan for retirement might be, it can be knocked off track by major life events, such as divorce. To avoid losing important milestones in the process of saving for retirement, it is essential to understand the various available options during property division.

Dividing up a retirement account can be a tedious task, and making early withdrawals usually requires a qualified domestic relations order — QDRO — in order to avoid penalties and taxes. In a marriage in which both spouses worked and had separate retirement savings, splitting up the funds in the separate accounts might not be necessary. If the amount in both retirement accounts is roughly similar, the couple may agree to divide their property along their individual accounts. This approach circumvents the need for a QDRO and can be simpler overall.

If this is not an option because the funds in the respective accounts are significantly different or because only one spouse has a retirement savings plan, a QDRO will usually be necessary. Assets obtained during a marriage are considered community property, which even applies to retirement savings made in only one person’s name through his or her employment. If that individual established the retirement account before tying the knot, only the amount saved during the marriage will be considered community property.

Property division can be one of the most difficult aspects of divorce. California couples must divide a variety of emotionally charged assets, such as family homes, shared vehicles and household goods. However, retirement savings present a unique challenge both emotionally and financially. Without a financially-sound plan for retirement, individuals may struggle in their later years. As such, individuals who are dealing with this situation should be certain to remain focused during the divorce process and may want to seek guidance when necessary.

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