Divorces with high-value assets can get messy, especially when it comes to dividing property such as retirement funds. You may be the main contributor to an account, but California's property division laws could still order a 50/50 split.
Understanding your rights during a divorce case in Fullerton could help you protect your assets and retirement accounts.
How courts split retirement savings
In California, the divorce courts abide by community property rules. Community property refers to anything of value you and your spouse acquired during the course of your marriage. This includes 401(k)s, pension plans and other retirement accounts. In a divorce case, you will first have the opportunity to divide your assets with your spouse yourself.
You and your spouse could work together to come up with a way to split your retirement savings fairly. If that does not work, however, the courts will typically divide all community property down the middle. Your spouse could receive 50% of your retirement savings, regardless of his or her personal contributions over the years.
Classify different retirement plans
The type of retirement savings plan you and your ex-spouse have together can determine factors such as taxation. If you have an IRA account, the courts refer to the division process as "transfer incident to divorce." If you have a 401(k) or another qualified plan, the courts will refer to the process as a Qualified Domestic Relations Order.
It is up to you and your ex-spouse to list your retirement savings under the correct category when filing for divorce. Otherwise, you could make the process more complicated than it has to be. The distinction is important because the government will not tax transfer incident to divorce transactions. Following the IRS's rules will help you avoid paying taxes on assets you give your spouse from your IRA. QDRO transfers are also tax-free if you report them correctly.