One common mistake people make during a San Jose divorce is failing to consider how divorce will affect their retirement.
A recent Securian Financial Group survey of over 500 divorcing couples who were married for ten years or more found that 31% did not claim a share of their spouse’s retirement benefits because they weren’t aware that they were entitled to a portion of these marital assets. Among those surveyed after the divorce, 25% said they wished they had known more about how to divide retirement benefits.
In California, retirement assets accumulated during marriage are considered community property that belongs to both spouses. This is true even if one spouse only works outside the home part time or not at all. However, any retirement assets accumulated before marriage belong solely to the person who earned them. This means it’s possible for a retirement account to have funds that are classified as both separate and marital assets.
If you are the lower earning spouse and have minimal retirement funds in your own name, you should prioritize retirement over all other marital assets. In the long term, retirement assets are more beneficial than taxable alimony payments or gaining possession of a house that you will struggle to maintain on your own.
Retirement assets are divided with what is known as a Qualified Domestic Relations Order (QDRO). A QDRO is a legal document that protects both of you from owing taxes when funds are transferred from one party to the other.
By law, you are allowed to withdraw money from your former spouse’s 401(k) or 403(b) plan one time without incurring the 10% early withdrawal tax penalty for people under age 59 ½. Most financial planners recommend not taking advantage of this perk, however, since allowing the money to continue to grow tax-deferred is the best way to ensure a secure retirement.
Your San Jose divorce attorney can answer general questions regarding how retirement assets are divided, but hiring a financial planner is strongly recommended. A skilled financial planner can provide you with specific advice regarding how to create a secure post-divorce financial future.