How To Protect Your Retirement During a Divorce

No one plans to get divorced, but there can be a mad dash to protect assets when it happens. Because California is a community property state, retirement accounts are considered part of the marital assets amassed during the marriage. During the property division phase of the divorce process, every account and property must be included, so the split is as equitable as possible.

In California, the following retirement accounts and plans are included in the property division:

  • 401(k) plans
  • 403(b) plans
  • IRAs, Roth IRAs, and SEP-IRAs
  • Employee stock ownership plans
  • Family-owned business-funded plans
  • Profit-sharing plans

How Retirement Accounts are Divided During Property Division

Because retirement accounts can’t always be divided equitably, they present a challenge for the division process. In California, even if your retirement account was established before you were married, portions of these accounts are marital property. For example: if your account were established years before you were married, the money from before the marriage wouldn’t be counted, but the money added since the marriage and the interest earned on that money would be considered marital property. Additionally, retirement accounts are often employer-provided, so when people move jobs, it’s possible to add new plans with each job. There are also brokerage accounts with self-directed retirement accounts and investments. With all the retirement and investment options available today, calculating the percentage of each account to determine what is marital or separate property could require many hours of high-level accounting.

Is it Possible to Protect My Retirement Accounts During a Divorce?

By the time you’ve decided to get a divorce, it could be too late to safeguard your retirement accounts from marital property division. A post-nuptial agreement could be an option if your spouse were willing to cooperate, and you could reach a mutually beneficial solution. When couples have many assets, like retirement accounts, to consider, the best way to protect these valuable assets is by establishing a prenuptial agreement that clarifies how retirement accounts will be treated in the event of a divorce. You could also protect your retirement plans on the backend using a post-nuptial agreement that outlines the specifics of how retirement accounts will be treated in the marriage going forward from the date of the post-nuptial agreement. You can protect your retirement investments by reaching a consensus with your spouse that agrees should the marriage end in divorce, you’d both keep your individual retirements accounts as separate property. It’s important to work with an attorney to create a prenuptial agreement that is fair so the courts will not void the agreement. Depending on your age when you divorce, dividing your retirement accounts after your working and highest-earning years are over could be detrimental to your overall financial health and safety net. Splitting your retirement account to fulfill your settlement agreement may not be feasible. Some plans will hit investors with a tax bill and a penalty for withdrawing too early. Understanding the rules of your plan will help you find the best course of action for your situation.

Hire an Experienced Attorney

Dividing accounts due to divorce is usually an emotional and frustrating experience. If you have high-value assets, it can be particularly worrying if these properties are part of a retirement strategy. Realizing you will need to divide these earmarked assets with your spouse doesn’t have to be a cause for alarm. If you can’t create a mutually beneficial post-nuptial agreement, you can hire an experienced and knowledgeable divorce attorney who can help speed up the property valuations for our assets and keep the property division process from dragging on for months. If you’re not married yet, but you’re worried about your retirement assets, now is the time to start working on a prenuptial agreement to meet your needs.

Palmer Rodak & Associates can help create a prenuptial agreement that protects your retirement assets. Call us today at (760) 573-2223 to schedule a consultation.