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Tips for dividing retirement and pension plans in a divorce

On Behalf of | Jul 26, 2022 | Divorce, Property Division

Almost all California divorces involve property division. Property division gets especially complex when you have many different types of assets to divide.

Retirement or pension plans are extremely important assets to most people, so understanding how they are divided in a divorce is essential.
Retirement and pension plans are considered community property in a divorce. This means that they are marital property belonging to both you and your spouse and subject to division as part of a divorce.

Know the account’s actual value

The correct value of the plans must be calculated before division. The value is not just the current balance at the time of your divorce, but the increase in value over the course of your marriage.

If you were only married three years, and an account with $100,000 in it increased by $10,000 over that three-year period, $10,000 is the value used for division.

Valuing a pension versus other retirement accounts

Calculating accurate values depends on the type of account. A pension provides you with a monthly stream of income after you retire.

The true value of your pension is how much this future income is presently worth. For example, your pension’s monthly statement may have a balance of $200,000, but the actual value may be well over $1 million.

You should also thoroughly examine the value of non-pension retirement accounts. You and your spouse can both keep your own retirement accounts if they are roughly the same value, but make sure you examine all portions of the account.

Divide accounts with a qualified domestic relations order

Retirement and pension plans are divided through a qualified domestic relations order, or a QDRO. This is a special order that allows division without tax consequences.

A QDRO is usually prepared by a professional because it is a highly complex document. It is then sent to the retirement or pension administrator for approval.

You should have this done before finalizing your divorce. You do not want to finalize your property division agreement and then have the plan administrator tell you that something was wrong, and the account cannot be properly divided.

Because of the complexity involved in calculating and dividing retirement and pension plans, using a certified divorce financial analyst is often a good idea.

Divorce attorneys knowledgeable about California’s property division laws can then help you create a property division plan based on your specific situation.