Divorce can be a complex and emotionally taxing process, especially for those over the age of 50. Some might argue that a so-called “gray divorce” when someone’s decades into marriage might be a little too late, but it’s an option, nonetheless. Older couples get divorced for many of the same reasons younger couples separate.
What might complicate a gray divorce, however, is how it interacts with retirement plans. If you’re going through a gray divorce in California, how would it affect your retirement?
Retirement accounts and community property laws
In California, the law treats all assets acquired during the marriage as community property. This means both spouses equally own all the assets. When it comes to retirement accounts, whether it’s a pension, 401(k), or IRA, these are typically considered community property if contributed to during the marriage.
Division of retirement benefits
While retirement benefits are community property by state law, a court can’t normally divide them like other community estate assets.
A court order known as a Qualified Domestic Relations Order (QDRO) determines how to divide retirement benefits. The QDRO instructs the retirement plan on how to pay the non-employee spouse’s share of the benefits. Note that the division is not necessarily 50/50; the court may consider the length of the marriage, the age and health of each spouse, and other factors.
Social Security benefits
A court can’t divide Social Security benefits, but an individual may still qualify for a part of their spouse’s benefits if they earned less than their partner, among other requirements such as being married for at least 10 years.
Strategies to protect your retirement
To protect your retirement during a gray divorce, consider the following strategies:
- Get a clear picture: Understand the value of your retirement accounts. Obtain current statements and documents related to your retirement plans.
- Consider the long-term: Look beyond the immediate cash value. Consider the tax implications and future growth potential of retirement assets.
- Explore alternatives: Sometimes, keeping the house in exchange for retirement benefits isn’t the best financial decision. You should evaluate any trade-offs with a long-term perspective.
In the journey through a gray divorce, safeguarding your retirement is paramount. An experienced family law attorney can be your ally. A legal professional may be able to ensure that all legal documents, including QDROs, are meticulously drafted and that your rights are thoroughly represented in the case.