Divorce With Respect

How community property laws may impact retirement savings

On Behalf of | Feb 28, 2024 | Division Of Assets |

Divorce usually inspires an assortment of financial concerns. People worry about paying for divorce, as the process generates thousands of dollars in costs. They also frequently worry about what property division might mean for their future financial stability. Those preparing for divorce often worry that they won’t receive a fair share of the marital estate and could end up struggling financially for years.

In California, the courts refer to the state’s community property statute when making decisions about marital assets. Spouses generally have to disclose their personal resources and marital assets to one another and the courts to ensure the decisions made are appropriate. A judge then decides how to divide the property in accordance with community property rules.

What can people anticipate happening with their retirement savings during a California divorce?

Retirement funds may be subject to division

Some people mistakenly assume that their retirement savings are separate property. They might reach that conclusion because the account is in only one spouse’s name or because they started it before they married their spouse.

The name on the account does not automatically make someone’s retirement fund their separate property. If they contributed to the account with marital income, those deposits and any interest they accrued are likely subject to division in the divorce. Even matching contributions from employers could be subject to division.

If a judge orders someone to split their retirement savings, they can potentially use a qualified domestic relations order (QDRO) to divide the funds in the account without worrying about taxes or penalties. However, the division of the account is not always necessary.

It is possible to divide marital property in accordance with community property statutes in California without actually splitting each account or asset in half. People can factor in the marital value of certain resources, like retirement savings accounts, when making decisions about a variety of other assets and even marital deaths. Spouses potentially have the option of cooperating with one another in an uncontested divorce filing. If they can agree on specific terms, divorcing spouses can set whatever property division terms they both agree are appropriate.

Understanding what community property rules might mean for specific assets can help people better prepare for an upcoming California divorce.