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Protecting retirement during divorce

On Behalf of | Apr 23, 2019 | Blog, High Asset Divorce

When people in California get a divorce, each may be entitled to a part of the other’s retirement account. This can have a significant effect on a person’s retirement plans whether it is in a few years or further away. It is important to not become overwhelmed by emotion during these negotiations since they can be important for a person’s future financial stability.

Some people may want to consider keeping a retirement account in exchange for other assets. If this is the case, they should ensure that they are aware of taxes and penalties associated with the account. For example, there are penalties for withdrawal from an IRA before the age of 59.5. If the couple decides to split a pension plan or a 401(k), they will need a qualified domestic relations order. This is a complex document that permits division of these plans in case of divorce.

If the two people have been married for longer than a decade and one was a much higher earner than the other, the lower-earning spouse might be able to draw Social Security benefits on the earnings of the other spouse. The lower-earning spouse is entitled to 50% of the benefits of the higher-earning spouse. The higher-earning spouse still receives full benefits.

In divorces involving significant assets, a retirement account may be only one of several valuable pieces of shared marital property. In community property states like California, assets are supposed to be divided equally, but in practical terms, this does not mean the couple has to split every asset 50/50. For example, if the couple has more than one home, each might take one. However, it is important to make sure that each person understands the value of the assets, including taxes and other expenses associated with them.