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What Happens to My Retirement Savings When I Get a Divorce?

Posted on in Divorce

Los Gatos divorce and QDRO lawyerDuring a California divorce, all community property must be divided between spouses. Unfortunately, a retirement account you have been sinking money into for years will not necessarily be all yours when you get a divorce. Even if an account is solely in your name, and you were the one earning the income, money saved during your marriage is typically considered community property. On top of giving up part of your 401(k) or pension, you may have to face penalties if you do not follow the proper procedures when splitting up the funds.

Avoiding Penalties When Dividing Retirement Funds

Even in the best divorce scenarios, both parties are likely to face some financial loss. Property has to be divided, and you will be walking away from one household to new bills in two different homes. Taking the proper steps when dividing retirement funds will ensure that you do not face additional financial penalties.

If you are the one who has to share your retirement savings, your attorney can walk you through the proper process to make sure that you do not lose more money than you have to because of penalties and early withdrawal fees. If you are receiving funds from your partner’s 401(k), you will get to keep more if you have the funds rolled over to your own retirement account than if you take the cash outright. In most cases, the best option is to use a QDRO to implement the transfer of funds.

What Is a QDRO?

A qualified domestic relations order, or QDRO, is a document used to transfer money from a 401(k) or pension plan without the owner of the account having to pay penalties for withdrawing the money before reaching retirement age. In turn, the party to whom money is being transferred may keep the entire amount if it is rolled over into their own retirement plan.

For some divorcing spouses, the money may be needed immediately to secure a new home, purchase a car, or pay off some other debts, and therefore, they may opt to take the cash rather than put it in their own retirement fund. In these cases, a QDRO should still be used, but the recipient of the money will have to pay income taxes on the amount received.

Your retirement fund administrator will have to approve your QDRO, and then the money will be distributed as per the agreement. Your divorce decree must also include details on the arrangements that you and your ex have made involving the retirement fund.

Contact an Experienced Los Gatos, CA Asset Division Lawyer

At the Law Offices of Benita Ventresca, we will help you through the divorce process, including the division of property such as retirement accounts. Our knowledgeable Los Gatos divorce attorney can ensure that you are not losing any money through needless fees when splitting your assets. Call 408-395-8822 to set up a free consultation today.

Sources:

https://www.cnbc.com/2018/03/07/dividing-401k-assets-in-divorce-can-be-an-expensive-minefield.html

 

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