Retirement, pensions and divorce: What couples need to know

Many people work their whole lives to build up their nest egg so that they can retire. When a couple makes their plans together, all that retirement money is expected to be shared.

When a couple decides to divorce, however, the issue of how to divide up the family nest egg can get very heated. You must understand how situations like these commonly unfold.

What happens with a retirement account in a divorce?

Retirement accounts are largely like any other property such as real estate, an investment portfolio or collection that a divorcing California couple might need to split up. Since California is a community property state, any retirement fund created during the marriage must be shared equally between the spouses. Even if a retirement fund was started prior to the marriage, money that was added to it after the marriage began is still considered community property and subject to division.

The exception to this rule is when a prenuptial or postnuptial agreement treats one or both spouse’s retirement funds as separate property. A spouse generally can’t stake a claim to the retirement account if this is the case.

What has to be done to divide the retirement fund?

Once each party’s share is determined, the spouse who doesn’t own the retirement fund needs to have a Qualified Domestic Relations Order (QDRO) prepared by their attorney to submit to the retirement plan’s controller so that the money can be divided without penalties.

You should know that QDROs don’t apply to any retirement plan, but instead, only those covered under the Employee Retirement Income Security Act (ERISA). The QDRO makes it easier to lawfully assign the proceeds in a retirement plan to someone other than oneself.

Sorting out what part of a couple’s mixed assets belong to each party can be very complicated in a divorce, particularly where retirement assets are concerned. Working with an experienced family law attorney can help.