California spouses who are beginning the divorce process need to understand how assets are divided up. It’s important for them to realize that some assets are harder to divide than others. One of the most difficult to split is a retirement account.
Determine separate vs. marital contributions
The first step in property division for retirement accounts is to determine the contributions that are considered separate property and the contributions that are considered marital property. If you had your retirement account before you were married, all those contributions prior to being married are considered separate property. However, any contributions made after your marriage, even if they were just from your paycheck, are considered marital property and are up for division.
Determining how the account is taxed
There are two different types of methods for taxation of retirement accounts. These fall into the traditional and Roth categories. In traditional retirement accounts, contributions are made before taxes are taken out. With traditional accounts, your divorce agreement will need to take into account the amount of taxes that will be owed when the money is withdrawn. In Roth retirement accounts, the contributions are made after taxes. This means that you will not have to pay taxes on the amount that is withdrawn from the account.
Getting the right division form
For retirement accounts to be split up during a divorce, you’ll need to submit the proper paperwork. The specific form that gets submitted will highly depend on the type of account that it is. For retirement plans like 401(k)s and 403(b)s, you’ll need to submit a qualified domestic relations order, or QDRO. For IRAs and HSAs, you’ll need to submit a Transfer Incident to Divorce form.
As you enter into the divorce process, it’s best to prepare yourself for the road ahead by doing some research. You should have a good idea of what’s going to happen with your retirement accounts as you continue through the divorce process. As always, it’s advisable to contact an attorney to help answer any questions you have regarding the topic of property division during your divorce.