How is a Retirement Divided in a California Divorce?
Learn how California divorce law divides private and public retirements
How do you divide retirement accounts in a California divorce?
Dividing a retirement account in a California divorce is probably not as complex as you may think. California law has specific procedures for dividing private and public retirements.
This is a comprehensive subject and to address it in detail takes more than an article. Our goal is for you to obtain a general understanding of how spouses in a California divorce divide retirements.
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How do spouses generally divide retirement accounts?
Spouses typically divide a retirement account through a document called a domestic relations order (DRO), often called a qualified domestic relations order (QDRO).
This order tells the retirement's plan administrator how to divide the retirement plan between the spouses.
May a spouse have a separate property interest in his or her retirement?
Just because a spouse accrued a retirement during the marriage does not necessarily mean the entire retirement is community property. If one spouse earned some of the retirement prior to marriage or continued to earn it post separation, the DRO or QDRO can determine the spouse's separate property interest. The order will specify to the plan administrator these time periods so the spouses properly divide the plan.
There are usually two types of retirement plans
Most of the time, a spouse has two types of retirement plans. One is called a defined benefit plan and the other a defined contribution plan. Some employers offer additional types of retirement plans.
An example of a defined benefit plan is a pension
This type of plan has a value which is typically a monthly benefit based on contributions made by the employee spouse and the employer. Most of the time, the non-member (non-employee) spouse has a 50% interest for the period of time the spouses were married and the member spouse (employee spouse) worked for the employer related to the defined benefit plan.
Another type of plan is a defined contribution plan
A few examples of a defined contribution plan are 401(k) plans, 403(b) plans, and 457 plans. These types of plans have a value based on the funds currently in the plan. For instance, you can check the plan today and determine the current value of your defined contribution plan.
Usually, these plans allow for immediate distribution, which may include a pay out of money to one spouse or a rollover of funds into another retirement plan. It is important to consider tax implications, because there may be taxes and/or penalties if the plan is liquidated or not properly rolled over. You should obtain tax advice from a tax professional.
Public versus Private retirement plans
A spouse acquires a public retirement plan through his or her employment with a city, county, state or federal government.
A spouse acquires a private retirement plan through private employment or personal contributions to a retirement account with a private company such as an investment company.
Many public employees have two types of plans: a defined benefit plan and a defined contribution plan.
When dividing retirement plans, the spouses must first determine if the plan is a private plan or public plan. It is important to check with the plan administrator regarding their specific requirements to ensure the proper language is included at the time of your judgment or agreement to divide the retirement plan.
Joinder of retirement plans in the divorce
It is generally necessary to join a defined benefit plan to a pending divorce action. There are specific forms spouses or their lawyers use to join retirement plans. If the retirement plan is a public California plan, such as CalPERS (California's public employee plan) and CalSTRS (California's teacher system plan), the joinder is mandatory.
LACERA (stands for Los Angeles County Employees Retirement Association) is a defined benefit plan for certain employees who work for the County of Los Angeles. Most of these plans are "contributory" plans, which means the employee makes contributions based on a percentage of the employee's monthly income. When a LACERA Plan learns an employee is a party to pending a divorce case, they may place a hold on the plan. The plan administrator will usually wait to receive the divorce decree or a QDRO before disbursing any funds to either spouse.
Most of the time, a joinder places an administrative hold (think of it like a "freeze") on the retirement account until the spouses properly divide the account through a DRO or QDRO.
What about Federal and Military Plans?
Military and federal plans have their own rules. These plans will usually not accept a joinder and will not put any hold on the account until receipt of the final and signed order with proper language to divide the plan.
If a spouse has a federal retirement plan, such as FERS (for federal employees), there is likely also a Thrift Savings Plan (TSP), which has a cash benefit.
For the military, everything is processed through the Defense Finance and Accounting Services (DFAS). There are specific rules regarding military retirements and the time period spouses must be married while one of the spouses was in service. Discussion of these rules is beyond the scope of this article.
We hope you enjoyed this introduction to dividing retirements in a California divorce