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How divorce affects retirement accounts

On Behalf of | Jun 21, 2023 | Divorce

As a community property state, California requires an equal 50/50 division of all marital assets at the time of a divorce. For the most part, this will mean that you and your former spouse will split retirement money or work out a settlement that reflects its value in some way. To prepare for negotiating the terms of your divorce, you will need to know the value of your retirement savings.

Single versus joint property

As a married person, your retirement savings or workplace pension represents a joint asset. However, only the portion of the account’s value earned during the marriage counts as a jointly held asset. Any earnings saved or accrued in the retirement account prior to your marriage remain solely yours. You would subtract the premarital value of the account from its current value to arrive at the figure the requires division in the divorce.

Pension value at the time of divorce

You will work with the value of your retirement benefits at the time of your divorce instead of what the account may be worth down the road when you retire. The current value could represent a much lower number during a high asset divorce than you anticipated. Pension plans typically tie value to the number of years that you work.

You will likely need to discuss your divorce with the administrator of your pension plan. The administrator can supply statements about its current value and explain the method for cashing out a portion to settle a divorce.

Your spouse’s retirement savings

If your estranged spouse has retirement savings of similar value, you may not need to make distributions from your account. Both of you have the option to each keep what is yours if the accounts have comparable value.