One asset that many California couples must divide if they are divorcing is a retirement account. The estranged spouses should make certain that they complete the correct paperwork so that they do not incur tax liabilities and penalties. Employer plans and 401(k)s require a Qualified Domestic Relations Order while individual retirement accounts need a transfer incident.
People also can decide how they would like to receive their distribution. One option is to roll the money into an existing requirement account. An individual can also opt to wait until the spouse retires to begin taking distributions. A third option is cashing out the account. People should also be sure to remove their spouse as a beneficiary on the account unless otherwise required as part of the divorce decree.
Another consideration is whether or not the accounts were contributed to before or after taxes. For example, Roth IRAs receive after-tax contributions but traditional IRAs, 403(b)s and 401(k)s all get pre-tax contributions. This may affect how much money an individual receives from the account.
California is a community property state, but this does not necessarily mean that retirement accounts must be divided 50/50. A spouse might decide to exchange a retirement account for another asset such as a different account or the home that the two share. In divorces involving significant assets, there may be a prenuptial agreement. Whether or not this is the case, division of property may be a complex issue. For example, it may be necessary to decide what counts as marital property. A person who is facing divorce may wish to consult an attorney who may be able to offer a disinterested view of the situation and provide advice accordingly.