Dividing retirement benefits in a California divorce can be complex. Under state law, retirement assets accumulated during the course of the marriage are considered community property and subject to distribution among divorcing spouses. Determining a proper allocation of funds that might not be accessed for decades might require considerable effort from spouses and their attorneys. One solution that can be used for certain types of retirement accounts is a qualified domestic relations order (QDRO). These directives set forth terms related to the allocation of funds in 401(k) accounts and other retirement plans that fall under the Employee Retirement Income Security Act (ERISA).
In a QDRO, the judge states that a set share of the participant’s plan is to be assigned to the participant’s spouse as part of their divorce. This can be given as a certain amount or a percentage of the plan assets on the date the marriage is dissolved. A QDRO is typically prepared by an attorney who subsequently forwards it to the participant spouse’s plan administrator. After the administrator authorizes it, the QDRO is submitted to the court for approval. Pursuant to the terms of the QDRO, retirement benefits can be paid in one lump sum to the alternate payee spouse, or they may be made in installments over a period of time.
Types of retirement plans that can be covered by a QDRO include:
- State government employee plans — These types of retirement plans include pensions that belong to employee participants in the California Public Employees’ Retirement System, the California State Teacher’s Retirement System, the University of California Retirement System, and plans of other public agencies.
- Plans covering business owners or church employees — Benefit pension plans, Tax Sheltered Annuity plans, profit-sharing plans and Keogh plans for business owners and church employees are divided using a QDRO.
Retirement plans that are not governed by ERISA cannot be divided by a QDRO. However, there are well established methods of distributing martial assets invested in:
- Federal government employee plans — If you have accumulated assets in the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CERS), a Court Order Acceptable for Processing takes the place of a QDRO by providing the federal Office of Personnel Management detailed instructions about how plan assets should be allocated.
- Individual retirement accounts (IRAs) — Splitting an individual retirement account (IRA) does not require a QDRO and can be characterized as a transfer incident in order to avoid a tax penalty.
If you’re facing divorce, an experienced matrimonial attorney can advise you regarding the division of retirement benefits and protect your legal rights if a dispute arises. Favaro, Lavezzo, Gill, Caretti & Heppell, PC provides high-quality legal services in divorce and family law matters throughout Napa and Solano counties. Call 707-674-6057 or contact us online to schedule a consultation. Our offices are in Vallejo and Fairfield.