Divorce can be a challenging and emotional process, especially when it comes to dividing assets accumulated during a marriage.
For many couples, one of the most significant assets is their retirement savings. If you find yourself facing a divorce in California, you should understand how to protect your retirement funds.
Understanding community property laws
In 2021, 689,308 divorces occurred, and California is just one of the nine community property states. This means that the assets you acquire during the marriage are community property and subject to equal division between you and your spouse. This includes retirement accounts, such as 401(k)s, IRAs and pension plans.
Gathering financial information
To safeguard your retirement savings, start by gathering comprehensive financial information. Make a detailed list of all your assets, including retirement accounts and their current values. Calculate your separate assets as well as the contributions you and your spouse made to your respective retirement accounts.
Considering a qualified domestic relations order
A QDRO is a legal order that divides retirement accounts between you and your spouse without incurring tax penalties. Work with financial professionals who specialize in QDROs to navigate this complex process successfully.
Exploring mediation and alternative dispute resolution
Rather than resorting to a lengthy court battle, consider mediation or ADR to reach a mutually agreeable settlement. A neutral third party can facilitate discussions, making the process more collaborative and less adversarial.
Considering negotiation
Early in the process, negotiate with your spouse for your retirement. You may have to give up assets you would rather keep. In addition, your spouse’s contributions to his or her accounts can offset your own, reducing his or her bargaining position.
After a divorce, reassess your retirement plan. Consider your updated financial situation and make necessary adjustments to ensure you can still meet your long-term financial goals.