DIVORCE AND RETIREMENT PLANNING

By Irving H. Zaroff, JD LMFT and Dana Schutz, MA LMFT

The question isn't at what age I want to retire, it's at what income.
~George Foreman

Beginnings are so often filled with dreams. Couples marry; build a family; and work to create a secure future including retirement planning. Retirement funding can be generated in pensions, savings accounts and deferred compensation plans. How does divorce affect those dreams?

This is a complex area in divorce because understanding the various types of retirement plans and making decisions for settlement involves expertise in financial planning, tax and family law. Two common types of plans are pensions (providing a monthly income) and savings plans (that provide tax shelter). These plans are again divided between “qualified” and “unqualified” plans (each receiving different tax treatment and/or requiring different planning to avoid taxes).

In California, retirement instruments, like other property in the marriage, are community assets to the extent the values are achieved between the date of marriage and the date of separation. These are the key steps to consider in distributing retirement assets:

  • Identify all retirement assets. This can be done by voluntary disclosure or by various techniques of discovery.

  • Gather documentation about the type of each plan, whether “qualified” or not, benefits offered, methods for dividing in a divorce, etc.

  • Determine the value of the plan. With pensions this may involve the employment of an actuary to calculate the “cash value” of the plan or a financial advisor regarding a division of the pension benefits.

  • Determine the community interest in the plan. If the work period, or the contributions made, precede marriage or follow separation, some of the value will be separate property.

  • Decide how the community interest will be divided. This may consist of dividing the actual plan into separate accounts or calculating a “buy out” from the non-participating spouse.

  • Seek assistance in implementing the division. If a qualified plan is to be divided you will likely need a Qualified Domestic Relations Order from the court. Because of the existence of so many pitfalls in dividing a qualified plan, it is best to employ an expert for this purpose.

Retirement in today’s economy is challenging. Proper planning in divorce can avoid turning the challenge into an ordeal.



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