Retirement Accounts And Deferred Compensation Can Add Complexity To Your Divorce
Dividing property during divorce can be complicated, even for assets the couple has immediate access to. Things are considerably more difficult for retirement accounts, stock options, pension plans and other forms of deferred compensation.
Thankfully, an experienced divorce and retirement accounts attorney can make a significant difference in your case. In San Francisco and throughout the Bay Area, clients have trusted Katherine Shlaudeman Law and Mediation Practice since 2007. My firm offers knowledgeable, honest and client-focused representation designed to resolve divorce matters amicably and efficiently.
Why Is Dividing Assets From A Deferred Compensation Plan So Tricky?
Deferred compensation is considered part of a worker’s income, but it will not be paid out (and likely won’t be taxed) for years or even decades. That makes it difficult to correctly valuate and divide these assets in divorce, for several reasons.
First, there are numerous types of common retirement accounts available, all with different terms and administrated by different entities. That means the legal requirements for dividing the assets within them are equally varied.
Second, there are many other forms of deferred compensation in addition to retirement accounts, with values that could be determined by individual performance, company success, years spent with a company and other factors. It may not be possible to predict the future value of a given asset, and even if it were, only a portion of that asset may be divisible.
The reassuring news is that couples who can negotiate with one another can largely set their own property division terms. Dividing up retirement accounts and other deferred assets is typically more straightforward when using divorce mediation or collaborative practice than when going through litigation. As an attorney with significant experience in family law, tax law and alternative dispute resolution methods, complex asset division is a major focus of my practice.
Utilizing A Qualified Domestic Relations Order To Split Retirement Assets
Retirement accounts are some of the most valuable assets an average couple will own. Therefore, they are a major focus of the property division process. When a company retirement plan such as a 401(k) or 403(b) is in one spouse’s name only, the assets contained within it cannot simply be divvied up based on the divorce agreement alone. Splitting these assets requires the creation of a qualified domestic relations order.
The QDRO allows for the legal transfer of a portion of one spouse’s retirement plan to the other spouse without incurring early withdrawal penalties or taxes. It provides specific instructions to the retirement plan administrator on how to divide the funds according to the divorce agreement.
Working with a skilled divorce and retirement accounts attorney is critical when dealing with QDROs. As a lawyer with more than 15 years of legal experience, I understand the legal requirements and intricacies involved in drafting and implementing these orders. I will ensure that your QDRO is correctly prepared and approved by the court, preventing costly mistakes and delays.
Frequently Asked Questions About Retirement Accounts And Divorce In California
Common questions about dividing retirement benefits and deferred compensation during divorce proceedings in California include:
What is a QDRO?
A Qualified Domestic Relations Order (QDRO) is a court order required to divide certain retirement accounts during divorce. The QDRO instructs the plan administrator to allocate benefits between spouses according to the divorce agreement. In California, QDROs commonly address 401(k)s, pension plans and 403(b) accounts. The order protects both parties from early withdrawal penalties and immediate tax consequences when transferring retirement assets.
What types of retirement accounts are subject to division during divorce?
California considers retirement benefits earned during marriage as community property subject to equal division. Divisible accounts include:
● Employer-sponsored qualified plans (401(k)s, 403(b)s, profit-sharing plans)
● Traditional and Roth IRAs (divided through transfer incident to divorce)
● Defined benefit pension plans (including military pensions)
● Stock options and restricted stock units (RSUs)
● Supplemental executive retirement plans (SERPs)
● Deferred compensation plans
● Government retirement benefits (CalPERS, federal pensions)
Only the portion accumulated during marriage (plus investment gains/losses) is typically subject to division. The “time rule” formula is often used to determine the community property portion of defined benefit plans.
Do I need an attorney to handle a QDRO during divorce proceedings?
While not legally required, working with an attorney experienced in QDROs is strongly recommended due to their complexity. QDROs involve intricate regulations and specific requirements that vary by retirement plan type and administrator. Common issues that can arise without proper legal guidance include:
● Incorrect valuation of benefits or miscalculation of the community property portion
● Missing required provisions for survivor benefits or early retirement options
● Plan administrator rejection due to noncompliance with plan requirements
● Improper division calculations for defined benefit plans
● Unforeseen tax implications and penalties
● Failure to address cost-of-living adjustments or disability benefits
An attorney experienced in QDROs can make sure the order properly reflects the divorce agreement, meets all legal requirements and protects your interests. They can also coordinate with plan administrators to implement the order correctly and address any issues during the process.
Get Knowledgeable Advice From A Family Law And Tax Attorney – Contact Me Today
Katherine Shlaudeman Law and Mediation Practice provides family law litigation, mediation and collaborative law services to clients in San Francisco and throughout the Bay Area. To schedule a virtual consultation about your legal needs, just call 415-413-4488 or send me a message online.