Dividing Retirement Accounts In Divorce

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Are Retirement Accounts A Divisible Asset?

Dividing Accounts Like 401(k)s and IRAs

Dividing Pensions

Social Security Basics

Social Security and the Death Of Spouse

Social Security and Multiple Marriages

Items of Note

Are Retirement Accounts A Divisible Asset?

The short answer is yes, California is a community property state; thus, the courts view benefits accrued during a marriage as shared property to be divided in a divorce. This includes retirement accounts such as 401(k)s, IRAs, pensions, employee stock ownership plans, employer matching, and Social Security.

Dividing 401(k)s and IRAs

The feelings about dividing retirement funds like 401(k)s and IRAs can be complicated, but given that the accounts have specific dollar amounts, the math is relatively simple in a community property state. The totals include any employer-matched funds.

Here's an example of the math for a 401(k) worth $500,000.

Year account is established: 2005
Year of Marriage: 2010
Year of Divorce: 2022
Total Value Now: $500,000
Value earned between 2010-2022: $300,000

The amount earned during the 12 years of marriage is a divisible asset; anything earned prior to or after the marriage is separate property.

In this case, the non-contributor would receive 1/2 of $300,000, or $150,000.

Dividing Pensions

When it comes to a pension, it gets a little murky because the value is unknown, especially if the person earning it is still working.

Here's an example of what the math looks like for a 30-year pension, depending on length of marriage.

SCENARIO 1:

You were already earning a pension 10 years before the marriage.
Your marriage lasts for 10 years.
Another 10 years go by before you collect on your pension.
Only the 10-year overlap of when you were married is divisible; the first 10 and last 10 are considered separate property.

If you're married for 10 of the 30 years during which the pension was earned, only those 10 years of retirement are a divisible asset.

Meaning, 1/6 goes to the non-earner, and 5/6 goes to the earner.

SCENARIO 2:

You start earning a pension while you are married.
Your marriage lasts 15 years.
You work an additional 15 years before retiring.

If you're married for 15 of the 30 years during which the pension was earned, only those 15 years of retirement are a divisible asset.

Meaning 1/4 total to the non-earner, 3/4 total to the earner.

Many factors come into play when determining Social Security benefits. For marriages of more than ten years, it’s essential to know how divorce impacts Social Security.

Your ex may be eligible to receive benefits based on your work history and vice versa.

You must have been married for at least ten years.
You must be at least 62 years old and currently unmarried, though it doesn’t matter if your former spouse remarries or not.
Any benefit established on your employment record must be of less value than theirs.

In short, you can receive one payment or the other, not both. You get to keep whichever benefit is larger.

In order to procure Social Security benefits, you or your ex must be eligible to receive retirement or disability, to begin with. Neither spouse has to file for Social Security yet, as long as they are eligible. If your divorce was more than two years prior, you can still make this claim. When you choose to collect also has an impact.

If you wait until full retirement age, you’re eligible to receive half of the amount your former spouse receives.
If you opt to receive Social Security benefits before hitting full retirement age, you get less money.

Items of Note:

Retirement accounts or benefits that are not considered divisible assets can still be counted as income when calculating spousal or child support obligations, thereby impacting the overall financial division.
Funds designated as separate property can be garnished if support payments are in arrears.
Some accounts or benefits cannot be received simultaneously.

In conclusion, depending on how many accounts you have, their type, tax implications, and financial division, it can turn into a hornet's nest in short order. Understanding the intricacies of retirement accounts and benefits is essential in a divorce.

Related Reading: What Is In A Divorce Decree?
Related Reading: Steps to Divorce In California

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