When it comes to property division in a California divorce case, including divvying up retirement accounts, what is known as the community property standard is applied. Generally speaking, the California community property standard presumes that assets and debts of the marriage are divided equally between the spouses.
Issues regarding division of retirement accounts in a divorce
Due to the nature of retirement accounts, special considerations come into play when a distribution of these types of assets needs to occur during property division in divorce proceedings. Certain processes need to be followed in order to avoid the imposition of taxes and penalties when these assets are divided during a marriage dissolution.
Mechanisms to transfer retirement accounts during a divorce
There are two primary mechanisms utilized in the division and distribution of retirement accounts during a divorce case. First, individual retirement accounts of IRAs are divided between divorcing spouses through what is known as a transfer incident to divorce. Second, other types of qualified retirement plans, including 401(k)s are divided and transferred in a divorce case through what is known as a qualified domestic relations order or QDRO.
Divorce decree and division of retirement accounts
A QDRO is a document that is separate and distinct from a divorce decree. With that said, reference to an existing QDRO is included in the final divorce decree issues in a marriage dissolution case. A transfer incident to divorce can be included in a divorce decree itself.
Due to the technical nature of both a QDRO and a transfer incident to divorce, care must be taken to ensure that these items are properly drafted. The failure to draft these items in a legally sufficient manner can have significant and expensive consequences.