Most couples think their most valuable community property asset includes their house or real property. Surprisingly, however, the most valuable asset for many couples after divorce comprises their retirement plan. What are the helpful steps to divorce and divide retirement? Just as with other community assets, a divorcing couple must settle their retirement division and other types of retirement accounts. In general, the law considers retirement benefits accrued during the marriage until the time of divorce as community property. Let’s look at some of the helpful steps to divorce and divide retirement.

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…or continue reading the article below to learn more about the steps to divide retirement in divorce.

Steps to Divorce in Dividing Retirement

amicable divorce

Some of the sensitive subjects during the division of property include retirement portfolios. You may have more rights than you realize. Some couples simply agree to waive rights to each other’s retirement fund. Before you start the steps to divide retirement in your divorce process, you must know 1) the value of the community property interest in the plan and 2) how to negotiate that value in the overall divorce settlement and property division process.

Furthermore, in some situations, you also must take additional steps to divide the retirement into divorce. A People’s Choice can help you navigate this tricky process. There exist three basic steps to divide retirement into divorce. Read on to learn more about this process of division of retirement assets.

Steps to Divorce: Step 1- File a Joinder as One of the Steps to Divorce and Divide Retirement

One of the first steps to divide retirement in divorce includes filing a joinder. Use a joinder to formally attach (join) the retirement plan as part of the collaborative divorce. That is to say, a joinder adds the retirement plan as an interested party (the claimant) to the divorce case. Keep in mind, however, that filing a joinder is not a requirement to divide every type of retirement account. Some retirement plans do not require the parties to file a joinder.

So why would you want to file a joinder? First, some plans such as CalPERS or CalSTRS require a joinder. In other words, they will not approve retirement account division or a QDRO unless you formally join the basic retirement plan for your asset at retirement. However, with this in mind, there exist many reasons to file a joinder, even if not during a formal legal separation process or active duty retirement.

As an illustration, if you want to make sure the plan is “locked up” until you can divide it after a divorce decree, you must file a joinder. The joinder must go along with your separation agreement. For example, a joinder would prevent the other party from depleting or borrowing against the accounts during a divorce.

Requirements of a Joinder

To formally join a plan, Family Code Section 2060-2065 outlines the requirements to join a retirement plan in a divorce case. Documents required include:

  • Pleading on joinder.
  • Request for joinder
  • Order of joinder.
  • Summons (joinder).
  • Notice of appearance in form and content approved by the Judicial Council.

As mentioned above, one of the benefits of formally joining a retirement plan to the divorce is to freeze the account until you finalize the divorce and reach a divorce agreement. Formally joining the retirement account into the divorce prevents either spouse from borrowing against the plan of an equitable division.

Steps to Divorce: Step 2- Negotiate Division of Retirement Accounts

One of the next steps to divorce and divide retirement entails negotiating what each party receives during the division of assets. During divorce negotiations regarding the division of retirement assets, you must work with your spouse to divide the plan. In some cases, one spouse may elect to receive a percentage of the payments when the other makes withdrawals on the plan regarding the division of retirement benefits.

In others, one spouse takes a lump sum and waives future claims for property division. Sometimes a party will waive their share of the community property retirement benefits. This serves in exchange for receiving an equalizing value in other types of assets (house or financial assets). Lastly, if each spouse has a retirement plan of similar value, you may choose not to divide the accounts in divorce.

Tax consequences may accompany your division decision for your marital assets. For this reason, you may want to speak with a tax attorney or financial planner specializing in the tax implications of dividing retirement plans. Choosing the wrong solution for this division can cost both parties thousands in tax penalties. Therefore, such professionals can provide legal advice in handling ordinary income taxes.

Steps to Divorce: Step 3- Prepare a QDRO as part of the Steps to Divorce and Divide Retirement

Agreeing on the terms of the plan division in divorce may look hard, but it doesn’t end there. One of the final steps to divide benefits after retirement in divorce entails preparing a Qualified Domestic Relations Order (QDRO). Once you present the completed and court-approved QDRO, the retirement plan administrator can divide the plan. Whether you decide to receive a percentage of retirement savings or a lump sum, you will need a QDRO. The following plans require a QDRO:

  • 401(k)
  • 403(k)
  • 457
  • Thrift plan
  • Profit-sharing plan
  • Money purchase plan
  • Employee stock purchase plan
  • Other business plans

Usually, individual retirement accounts (IRAs) and pension plans will not require a QDRO. Check with the plan administrator about their specific requirements based on the different types of retirement plans.

QDRO – Final Steps to Divorce and Divide Retirement

As mentioned above, preparing the QDRO comprises one of the final steps to divide retirement plan assets in a divorce. Once the judge signs the QDRO order, the plan administrator can divide the benefit retirement plans. With this in mind, the different kinds of retirement plans have specific requirements for their QDRO before they get approved through the Civil Service Retirement System. Generally speaking; however, a QDRO will contain the following retirement application information:

  • Name of the plan i.e. employer-sponsored retirement plans
  • Name and address of the alternate payee
  • Percentage or fixed-dollar amount the alternate payee will receive
  • Duration of the payments.

Steps to Divorce: QDRO’s are Complicated

Don’t get fooled by what resembles a simple process for the division of assets during divorce proceedings. QDROs are complicated. When A People’s Choice prepares a QDRO, we make sure to tailor the language in the document to the specific rules of the benefit pension plan. You should file a QDRO as soon as your divorce gets finalized. If you fail to file immediately, you could face negative consequences incident to divorce.

Unfortunately, we have heard of many divorced individuals losing their portion of a retirement division or retirement money because they did not timely complete the QDRO process. In this regard, many other things can also go wrong if you delay preparing a QDRO. First, alternate payees cannot receive back payments. Also, if the principal payee dies before filing your QDRO, the plan will not pay out any benefits.

Do not jeopardize your future by leaving retirement plans out of your divorce. Contact A People’s Choice for more information about how to divide your retirement plan in divorce and how to protect your interests once you’ve completed negotiations. Call us today at 805-648-5540.

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