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Dealing with retirement assets in a divorce

The overall divorce rate in California and around the country has remained fairly stable in recent years, but the number of divorces involving couples over the age of 50 has soared. Property division negotiations are often complex in gray divorce cases as older spouses tend to have more valuable marital estates, and deciding how to deal with retirement savings that have been diligently built over decades can be especially thorny.

Retirement assets can be generally divided into plans with defined contributions like 401(k) accounts, plans with defined benefits like pensions, and individual retirement accounts. IRAs can be dealt with like any other marital asset, but a judge must issue a Qualified Domestic Relations Order to divide defined contribution and defined benefit plans. The government encourages retirement planning by offering tax breaks, which may be lost if these funds are accessed by individuals younger than 59 1/2 years of age. However, tax benefits can usually be protected by rolling money from a 401(k) or IRA account into a new retirement plan.

Placing a cash value on pensions is sometimes a contentious process during a divorce as spouses must determine how much benefits that will be received years or decades in the future are worth in today's money. Choosing the deferred division method avoids this problem by dividing the benefits between the spouses when they are paid. There are also situations where judges may decide to address this issue at some point in the future.

Property division negotiations over retirement funds can be particularly difficult in states with community property laws that require marital assets to be divided equally. Family law attorneys in states like California may encourage couples who would prefer to make their own arrangements to consider prenuptial or post-marital agreements. However, attorneys could point out to clients that these agreements may be difficult to enforce if they are not essentially fair or not negotiated in good faith.

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