If you are preparing for a divorce in California, you doubtless have concerns over your financial assets, including savings accounts and 401K plans that you have worked hard to earn. You will need to learn California’s property division laws to understand what will happen to your 401K plan after a divorce. You may also need assistance from an attorney to protect your marital assets, including your retirement savings.
How Are 401Ks Split in a Divorce?
A 401K is one of the most common types of retirement savings accounts. Most married couples in California have 401Ks that either one or both spouses have been contributing to throughout the marriage. Unfortunately, if you are one of these couples, you are looking at a complicated legal matter when it comes to getting a divorce. Depending on facts such as when you opened your savings account, your spouse may be legally entitled to at least part of the value of your 401K.
For the most part, 401Ks in California are split down the middle in a divorce case. This means your spouse may be entitled to 50 percent of the value of your 401K, even if you were the sole contributor. This will only be the case if you opened the retirement account after your marriage or if you commingled your 401K with your spouse’s retirement savings. In these scenarios, your 401K is classified as community property, making it eligible for division in a divorce case. This rule will only apply to the amount you contributed to your 401K during your marriage, however. This is a complicated area of law that can change on a case-by-case basis.
What Rules Govern Marital Assets in California?
How your 401K is divided depends on the property division law in your state. If you file for divorce in California, you will most likely have to divide your 401K – as well as all other financial assets, including other sources of retirement savings – down the middle with your spouse. This is because California is a community property state.
State law looks at a married couple as its own community, where each spouse owns an equal share of all assets and property acquired during the union. In an equitable division state, on the other hand, the courts split all marital assets equitably, or fairly, according to the couple’s unique circumstances. This may or may not be a 50/50 split.
In California, the courts will only touch property that is classified as community property. It will not divide separate property. Community property refers to assets that you acquired after your marriage, while separate property is assets you owned before the marriage. If you started your 401K before you were married, therefore, and did not commingle this asset, it may be protected from division with your spouse.
Can You Protect Your 401K in a Divorce?
California’s community property law applies to all types of retirement plans, including private 401Ks, employment plans and family-owned plans. There are ways you may be able to protect your 401K from division during a divorce case, however. Do not make a withdrawal prior to your divorce, as this may only result in the court treating it as an advanced payment on your spouse’s share of the property. If you have to make a withdrawal due to financial hardship, however, the court may not make you reimburse your spouse.
You may be able to protect your retirement savings accounts from California’s community property law by keeping them classified as separate property (in your name only). If you opened a 401K plan before your marriage, do not commingle it with your spouse. You may also be able to use a tool such as a prenuptial or postnuptial agreement to protect your 401K from division. For more information about how to protect a 401K, contact a divorce lawyer in Orange County today.
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