Divorce With Respect

A look at dividing retirement accounts in a gray divorce

On Behalf of | Jul 15, 2019 | Divorce, English, Firm News | 0 comments

The overall rate of divorce is the lowest than it has been in years. However, Forbes reports that divorce among older couples is moving in the opposite direction. Over the last decade, it has been steadily increasing.

Past posts have pointed out many of the aspects and challenges of older divorcing couples or gray divorces. One common factor involves the issue of dividing retirement accounts. Distributing retirement assets is already a complicated process, but it can be even more stressful for older couples.

Retirement and pensions are some of the most valuable assets

People across California essentially spend their entire adult life saving up for their retirement. Whether through employer contributions or their savings, it is easy for a retirement account to become a person’s most valuable asset.

That is the goal of retirement accounts after all. Individuals depend on those accounts and benefits after they leave the workforce. And many individuals calculate precisely what they will need to maintain their lifestyle.

However, both spouses have a right to the portion of a retirement account accumulated during a marriage.

Joint ownership means an equal division

California is a community property state. This means that all of the marital property-or assets acquired during the marriage-belongs to both spouses.

So, even if one spouse’s 401(k) is in their name, their spouse has a right to the retirement assets acquired during their marriage.

Spouses can generally divide their retirement accounts in two ways:

Divorcing couples can also negotiate how they wish to distribute their assets, but California courts generally advise couples to maintain a strategy for equal division.

Calculating the new income is critical

The effects of dividing retirement assets vary depending on each couple’s situation.

For example, if both spouses have their own 401(k) that was acquired during marriage with roughly similar amounts, they may still have to divide the assets, if only to equalize the amount.

On the other hand, if there are significant differences in each spouse’s retirement account, then spouses can expect considerable changes in their retirement finances than what they had previously planned.

And regardless of the retirement savings each spouse has, they both will have to grow accustomed to living with separated finances after a divorce.