Are retirement plans community property in California?

In California, retirement plans are considered community property but it is important for people to make sure they are handled correctly.

Going through a divorce is not easy. There are often many emotions involved and during this time it is possible for people in Sacramento to make mistakes that can affect them for a long time. The Family Code of California declares that all property a couple receives, earns or acquires throughout the marriage is community property and that includes retirement plans.

This is simple enough to understand for retirements that were set up after the wedding but many spouses will insist that a retirement plan set up before the wedding is separate property and therefore, not touchable. In some jurisdictions, this may be true. In California, however, any gains and losses as a result of separate retirement plans are not subject to division as community property.

Problems if divided wrong

Once it is determined that the retirement plans are community property, the next step is to make sure that the division of the account is done correctly. For example, if an IRA account is being divided, the receiving spouse may choose to just place the money in a savings account for use. However, this act will trigger early withdrawal fees and can be considered taxable. To avoid these issues, spouses should make sure that they set up a new IRA account in their name and transfer the money there.

Problems may also occur from when the funds were transferred. Fox Business points out that spouses may be hit with an early withdrawal fee of 10 percent of the account's value if they are under the age of 59 1/2, and transfer the funds before finalizing the divorce.

Adhering to federal and state laws

When dividing retirement plans, spouses should take into consideration the type of plans they are. 401Ks and pension plans are subject to federal laws and there may be special rules on how these plans should be divided in divorce. Forbes states that the best way to avoid potential issues with these types of plans is to obtain a qualified domestic relations order.

This order should be issued before finalizing the divorce and should clearly spell out the percentage of the account that will be paid out (if used for an IRA or non-federal plan) and how the receiving spouse will be paid from the plan. Spouses should also work with an attorney to make sure that a separate QDRO is prepared for each pension or retirement plan and 401k before completing the divorce settlement.

Seeking legal help

Dividing retirement plans is a complicated process and therefore, people in Sacramento should always seek legal help. An experienced attorney can explain state and federal laws to them, protect them from making costly mistakes and identify retirement plans that do qualify as community property.

Keywords: divorce, property, community, separate, retirement