Dividing Investments and Pensions in a California Divorce

Californians considering divorce likely have concerns about how the court will divide certain assets accumulated over a long career. California is a community property state, which means that property and assets accrued during a marriage will be divided evenly between both spouses with a qualified domestic relations order (QDRO). Here’s everything you need to know about dividing investments, IRAs, and pensions in a California divorce.

Marital (Community) Property vs. Separate Property

California marital property, also referred to as community property, is the concept that any property or debt acquired by one spouse during their marriage is seen as belonging to both of them (or the “community” that they make up together). In accordance with this, Family Code Section 760 states that all property acquired in marriage – real or personal – is community property. Examples of assets that may fall under this umbrella category include pension plans, individual retirement accounts (IRAs), and defined contribution employer plans. There may be certain exceptions where the court will consider a retirement account as separate property.

Separate property in California is property owned before the marriage, and thus does not belong to the “community”. Examples of assets that are considered as separate property are gifts, inheritances, and other property earned either before or after the separation (as long as they are not mixed with community assets). For example, if one spouse purchased a car before or after their marriage, that car would be considered separate property and would belong solely to them.

Commingling – The Mixing of Marital and Community Property

Property is often a mixture of the two aforementioned categories rather than simply being divided cut-and-dry. As stated earlier, separate property may be mixed with community assets. One common example is if one person owned a home before the marriage, but sold it to make payments on a hew home with their spouse. The payments used with their initial profit would be considered separate property, but any mortgage payments made with money earned from the marriage would be considered marital property. Thus, this is now an instance of commingling separate and community property. Another example of commingling that may be more complicated involves money in a bank or investment account before marriage, and then alterations are made to the name(s) on the account or earnings deposited during the marriage.

Consider consulting an expert property division attorney to trace commingled assets.

How to Obtain a QDRO

A QDRO, or qualified domestic relations order, is a legal document that recognizes that a spouse, former spouse, or another dependent (such as a child) is entitled to receive a predefined portion of the other spouse’s individual retirement plan assets. A court order cannot force any distribution of retirement benefits that are not provided through the retirement plan. Once a court has issued a QDRO, the owner of the retirement plan must send this order to the plan administrator for review. This will then allow the administrator to distribute a percentage of the plan’s funds to the receiving spouse. Diving retirement savings can be a complex process, especially when both spouses have different accounts and separate contributions before their marriage. In some cases, California courts will allow for a spouse to arrange an exchange of other property for their partner’s share of their retirement account.

FAQs About Dividing Investments, IRAs, and Pensions in a California Divorce

Can a couple decide if they want to designate separate property as marital property?

Yes, a couple is allowed to designate certain items or assets as separate or marital property. However, they must document this agreement in a written contract signed by both spouses.

What is the difference between a QDRO and a DRO?

A qualified domestic relations order, or QDRO, recognizes that a spouse, former spouse, or another dependent (like a child) is entitled to receive a predefined portion of the other person’s individual retirement plan assets. A domestic relations order, or DRO, is a court order that gives a spouse or dependent the right to receive all or a portion of an employee’s retirement plan in the event of a divorce. The main difference between the two is that a family court can issue a DRO. In order for a DRO to be qualified, it must meet the requirements of the Employee Retirement Income Security Act (ERISA). All QDROs and DROS must be in writing and be specific enough for the retirement plan administrator to implement.

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If you or a loved one have any more questions about dividing investments, IRAs, and pensions in a California divorce, contact us. Get your free consultation with one of our experienced Property Division Attorneys today!