A 2016 survey of members of the American Academy of Matrimonial Lawyers found that retirement plans were the second most common topic of conflict in a divorce. In first place was alimony and in third place was business interests. California couples may have to face this issue when their marriages are coming to an end.
The couple can avoid having to pay penalties or taxes on a distribution during a divorce by following certain regulations. For a 401(k) or pension, the couple will need a qualified domestic relations order. This is a complex document that an attorney should prepare and give to the plan administrator for approval. Couples should also review it to ensure that it is consistent with their divorce decree. Rolling the distribution over into an IRA avoids all taxes and penalties. The distribution can also be received directly although the person would need to pay regular income tax on it.
An IRA must be rolled over into another IRA to avoid these taxes and penalties. Individual financial institutions will have their own paperwork requirements and will probably need a copy of the divorce decree.
In Divorces involving significant assets can become complicated. Since California is a community property state, a business owned by only one person or other assets that a person has acquired since the marriage may be considered shared property. The appreciation value of assets a person brought into the marriage might also be considered shared property. If the couple owns a business together, they might need to decide whether one will buy out the other or if they will sell it or continuing running it.