It takes decades of hard work and planning to build retirement savings that will sustain your needs and lifestyle without financial worries in your senior years. The question that automatically comes to mind is: does my wife/husband get half of my retirement savings in our divorce?

In California, a community property state, assets owned by each spouse before marriage are considered separate property, and all assets acquired during marriage are considered community property. Each spouse is entitled to 50% of community property in divorce, which also pertains to retirement assets, such as pensions, 401(k)s, IRAs, and other retirement accounts. Each retirement account typically has one holder, known as the participant. A Qualified Domestic Relations Order (QDRO) is a court order from an approved divorce settlement that is required for a portion of the 401k to be rolled over to the non-participant spouse without incurring tax penalties for early withdrawal.

The initial thought of divorce altering your trajectory toward the retirement you had dreamed of can stir up feelings of panic, stress, and even resentment. However, in mediation, parties may negotiate and agree to divide their assets outside of the standard provisions of community property laws. As an alternative to traditional divorce proceedings, divorce mediation takes a flexible, practical, and personalized approach to the division of marital assets, including retirement assets, thus giving parties more control over their settlement terms.

Protect Your Retirement Assets In Divorce

In a traditional divorce process, each individual retains their own attorney. A common scenario that raises tension is if one spouse earned significantly more over the course of their long-term marriage and thus contributed more to their retirement savings. The divorce attorney representing the spouse who earned less and saved less for retirement is more than likely to insist that the case is straightforward; community property laws say that their client is entitled to 50% of retirement assets acquired during marriage. 

The client who earned and saved more for retirement is concerned that the 50/50 split will ultimately diminish their financial security. In the heat of hostility, they remark that the other has less saved in retirement because they were less financially responsible and also notes that they contributed less to their marriage. Chaos ensues over past grievances and the focus shifts away from long-term financial security. As the situation escalates into a legal battle, the case goes to litigation in court where the judge orders a 50/50 division of marital assets, with the details becoming part of public record. 

This type of bitter unfolding is all too common in the traditional divorce process—it’s easy to get caught up and overlook the long-term implications of dividing major financial assets. 

In another version of this scenario, mediation maintains client privacy and confidentiality and brings parties face-to-face to look at the bigger financial picture. Both parties gain a clearer understanding of the fact that being entitled to 50% of retirement assets acquired during marriage does not mean each spouse receives that amount immediately: they must either wait until retirement age to withdraw funds, or pay early withdrawal penalties which are upwards of 40% in some tax brackets. In mediation, both parties recognize the uniqueness of their individual circumstances early on, and are encouraged to calmly and logically customize their divorce settlement to address each party’s financial needs in the best possible way. 

If the spouse with higher retirement savings is also closer to retirement age, they may prioritize their retirement assets more than other marital assets. The younger spouse who has earned and saved less will have to wait longer before retirement age to withdraw funds without withholding taxes and paying penalties, and thus may prioritize retaining the marital home or ensuring immediate funds to cover basic needs and living expenses. Parties can be more creative and may negotiate for one spouse to retain all of their retirement assets while the other spouse retains the marital home, or receives a lump sum payout. 

Colleen McNamee is the only Certified Family Law Mediation Specialist in Orange County, renowned for her compassionate guidance and proven conflict resolution techniques. McNamee Mediations streamlines the process of divorcing with retirement assets and complex financial portfolios, fostering professionalism and collaboration when discussing financial matters & concerns, while encouraging parties to focus on safeguarding wealth with an emphasis on long-term financial interests.

To learn more about navigating the division of retirement assets in divorce, give McNamee Mediations a call today.

Call Us Today: +1 (949) 223-3836

E-Mail Us: mmediations@msn.com