During a marriage, spouses work together to build their future. Spouses will plan financially for retirement by contributing to retirement accounts such as pensions and 401(k)s. Stock options may also be available as benefits through the employment of one or both spouses. When a marriage fails, these assets must be dealt with along with all of the other assets. California is a community property state. This means that property acquired during the marriage will be equally divided at the time of the divorce. Funds acquired for retirement are no exception to this, but the issues can be a bit more complicated than dividing other assets.
Division of these accounts can be greatly complicated by deciding what is marital property and what is not. Funds that accrue during the marriage will be marital property, subject to division, while funds that accrued before the marriage would be separate property. For example, if a wife has $20,000 in her 401(k) at the time of marriage and $100,000 in the account at the time of divorce, only $80,000 could be marital property, as only $80,000 accrued during the marriage. Accordingly, the husband would receive only his one-half share of the account that is subject to the accrual during the marriage as his share of the 401(k). Most parties employ the use of a Qualified Domestic Relations Order (QDRO) to help them determine what part of a retirement asset belongs to the marriage.
Another complicated issue can be valuation. The value of a pension account or similar is based on a formula, not on a liquid amount currently in the account, like with a 401(k). The two main ways to value and divide a pension are to either assign a value at the time of divorce, allow the account holder spouse to keep the pension and buy out the other spouse by paying him or her a lump sum value. Alternatively, the parties can agree that no money or value will be assigned or paid at the time of the divorce. Instead, the parties will each receive a percentage of the payout at the time the account holder spouse starts drawing his or her pension. Stock options are similarly complicated, as their value can vary greatly depending on the date the option is valued. Like with a pension, the parties can agree to allow a spouse to “buy out” the other’s interest at the time of the divorce or agree to provide a percentage of the benefits at the time the options are exercised.
Dividing marital property can be complicated and you need an experienced attorney to help you. Call us today at 619-800-0384 and let us talk with you about your retirement and your future.