Q: Retirement assets: How are they divided in divorce in California?
A common misconception among many divorcing parties is that their retirement accounts are “theirs” and the other spouse should not have any corresponding ownership interest. The thinking is: “Hey, I earned this myself, I put in the work, and I should not have to share any of it with my spouse.”
The truth is that in California, retirement contributions, both from a working spouse and from an employer that contributes to a working spouse’s retirement account, are community property and therefore owed 50% by each spouse. Practically speaking, all contributions made to a 401(k) or IRA or other retirement asset during marriage are community property and must be divided upon divorce. All contributions made prior to marriage, or after two spouses separate from one another, are the separate property of the earning spouse (and therefore owned 100% by that spouse).
The same methodology is true for defined benefit retirement accounts, or pension plans, increasingly rare though they may be. Pension plans typically do not pay out to a participant until he or she reaches retirement age, but still can be divided in a divorce. The pension plan itself, or an actuary if needed, can determine the community interest in future pension payments and ensure that when the working spouse reaches retirement age, then both spouses can begin receiving his or her share of the payments.
Most retirements assets are divided via a specific type of court order: a Qualified Domestic Relations Order (QDRO). QDROs are prepared by your attorney, or by a specific QDRO expert. They are a relatively simple and straightforward method to divide retirement assets. Your attorney will walk you through the correct steps to accomplish this goal.