Couples who have been married for more than ten years often face challenges when dividing retirement accounts during a divorce. Fortunately, there are creative ways to avoid having to divide retirement plans in divorce. Read on to learn more about how to avoid retirement division in divorce and how A People’s Choice can help.

Community Property Overview

In California, all assets and debts acquired during marriage are considered community property. California family law requires community property assets to be divided equally if there is no written agreement requiring a particular division of property. Upon dividing the community property, the law requires that the net value of the assets received by each spouse is equal.

“My wife and I were able to take a fresh, new look at how we could equally divide up all the assets we accumulated during our marriage .” Edgar B.
“We were able to find a solution we both could agree on and A People’s Choice wrote it all out in our agreement. Sometimes it helps to have another person’s perspective!.” Edgar B.
“I greatly appreciated A People’s Choice explaining the various ways some of their clients have avoided dividing retirement benefits in a divorce. ” Edgar B.

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When a married person accumulates an interest in a pension or other employment benefit plan, the interest that accumulated during marriage is considered community property and is subject to division upon divorce.  Any contributions made to a retirement account prior to marriage are considered separate property and is not included in the division.

How Pension Plans are Divided

Pensions are typically divided in one of two ways in California: 1) Reservation of jurisdiction by the court; or 2) Total cash-out. In regards to a reservation of jurisdiction, the court orders that when the benefited spouse retires, the non-employee spouse is to receive a percentage of the pension. The percentage paid to the non-employee spouse is determined by dividing the years of marriage by the years the employee spouse participated in the pension plan. The non-employee spouse can elect to receive his/her share of the pension benefit at the earliest time the benefited spouse can retire.

The cash-out method allows the non-employee spouse to receive a lump-sum payment of the present value of the community share. The cash-out allows the benefited spouse to receive the pension in its entirety and the non-employee spouse to receive other community property assets in exchange.

How to Avoid Retirement Division in Divorce

When considering how to avoid retirement division in divorce, you may think about cashing out your spouse’s interest in the retirement account. The cash-out method allows the employee spouse to keep his/her retirement in exchange for his/her interest in other valuable community assets such as real estate, collectibles or bank accounts including 401(k) plans and annuities.

Lisa and Drew filed for divorce after thirty years of marriage. Lisa has worked for a local state agency for the past 15 years. Lisa has a pension with a present value of $100,000. Lisa and Drew have a home valued at $500,000. They currently have $100,000 in home equity. The parties can avoid retirement division in divorce by agreeing to allow Drew to keep the real property in exchange for Drew relinquishing his interest in Lisa’s pension.

Different trade-offs can be made when considering how to avoid retirement division in divorce. Depending on marital assets, a spouse may avoid retirement division in divorce if he/she is willing to give up another asset in exchange. Contact A People’s Choice for more information about creative marital settlement solutions that may help you avoid retirement division in divorce.

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