401K & Retirement Account Division
We can assist you in determining what is Community and what is Separate Property.

Evaluating Assets And Retirement Accounts In A Divorce Is No Small Task

In theory, the laws dictating how divorcing spouses classify and split assets are fairly straight-forward. Assets that were accumulated / money that was earned DURING the time of the marriage is considered “Community Property” and will be split equally between the spouses. Property that each spouse owned before the marriage is considered “Separate Property”; each spouse keeps their separate property. If everything that was being split was cash or some other liquid asset, simple math would dictate who receives what. However, assets and retirement account division in real life is much more complex. There are a number of situations where certain assets can be very difficult to value.

Retirement Account Division

Retirement savings like IRAs and 401(k) accounts that were contributed to during the marriage are community property. Retirement assets can be a challenge through a divorce because they can potentially be both community and separate property, if contributions were made both before and during the marriage. They also are typically not liquid assets, as there are both early withdrawal and tax penalties for cashing out a retirement account.

Rental or Investment Property

If you and your spouse own more than one home and used the second home to generate income during your marriage, that income is community property. Even in cases where the home itself was owned by one of the spouses before the marriage, the income is still community property. In situations where spouses own and operate rental property together, having an experienced divorce attorney is crucial. If you are settling for what your spouse valued their property at, you may be receiving far less than you deserve.

Rental or Investment Property

If you and your spouse own more than one home and used the second home to generate income during your marriage, that income is community property. Even in cases where the home itself was owned by one of the spouses before the marriage, the income is still community property. In situations where spouses own and operate rental property together, having an experienced divorce attorney is crucial. If you are settling for what your spouse valued their property at, you may be receiving far less than you deserve.

Separate Property that was sold is still Separate property

If one spouse owns a home before the marriage and then sells the house during the marriage, that is still considered separate property. However, it’s important that funds from the sale of separate property are traceable, meaning they are not transferred into a general household account.

Splitting Retirement Accounts

A Qualified Domestic Relationship Order (QDRO) effectively splits the retirement account, assigning some portion of the account to another beneficiary. Filing a QDRO is an extremely complex process that must be completed accurately and filed with the administrator of the 401(k) plan. Once the account is split, the new beneficiary is free to withdraw and pay the taxes, roll the account over to another provider, or simply leave it where it is.

Splitting Retirement Accounts

Over the past few years there has been a steady increase in the availability and advertising of “Do-It-Yourself” Divorce forms. While this can seem like a great idea in principle, these forms can be misleading and dangerous. Some do not comply with the standards of your county court. There are also forms that do not address all of the issues leaving important financial matters unresolved. There is no substitute for experience. You end up learning a lot about divorce going through the process, which is to say you know very little about it before you’ve gone through it. Don’t make a mistake that could cost you for years to come, rely on the experience and guidance of the divorce attorneys at Gardner Smith & Hill.

Accounting for the Retirement Account in Other Ways

There are times that splitting a 401(k) is simply not cost-effective or just doesn’t make sense. Divorcing spouses can make adjustments in other areas to account for one person retaining the entire 401(k). For instance, one spouse may keep the equity in the house in exchange for the other spouse keeping their entire 401(k).