Pension and Retirement Division in Divorce

Under California’s community property guidelines, the Family Law courts are to divide all assets and debts of the marriage equally and equitably. The value of the marital estate is generally set either by the parties, in a Marital Settlement Agreement (MSA), or as close to the date of trial as possible in accordance with Family Code § 2552. Even when parties have entered into a Premarital Agreement and/or a Marital Settlement Agreement, the Family Law court retains the authority to oversee the division of assets and debts (Family Code §§ 2010).

Thanks to the Employee Retirement Income Security Act of 1974 (E.R.I.S.A.) and its subsequent revisions, the Family Law court’s jurisdiction, except as specifically limited by federal and state employment laws, covers pension and retirement plans. Thus, a straightforward way to review your marriage’s pension and retirement plans/accounts is to first determine whether they include government-sponsored pensions. If so, several provisions must be honored to result in an effective division of the marital estate. This area is beyond the scope of this article. However, where non-government pensions and retirement plans are assets to be divided, the process is relatively simple.

How Assets Are Typically Divided

As stated above, assets get split in half, unless it makes more sense to award one to one spouse and another of equal value to the other spouse. Where the asset must be split, two questions arise:

1. Is the asset an account or plan that can be specifically valued as of a given date, and easily divided by a written form (usually provided by the financial institution) or a notarized letter from the parties?

Here, all that needs to be done is to execute the form or letter and have the payment deposited in a tax-protected retirement account. Current law and social norms allow most non-pension accounts and plans to be readily divisible in this manner.

2. Is the account part of a Defined Benefit Plan (“pension”)?

In this situation, which frequently occurs with large and well-established employers, the retirement benefits may include a variety of plans, accounts, and divisible benefits. These may include pension, tax-qualified/matching funds accounts, tax-qualified deferred compensation accounts, and healthcare benefits extensions.

Division of Pensions and Defined Benefit Plans

Pensions (as defined above) and extended health care benefits usually must be “joined” (known as a motion or petition for joinder) to the Family Law case. Terms of the pension division must be specifically agreed upon or determined by the court. These are embodied in a separate order, known as a Qualified Domestic Relations Order (QDRO).

The judgment or MSA is not sufficient to bind a pension plan administrator to divide the plan’s assets and benefits according to the terms of those pleadings. E.R.I.S.A. requires that pension plans adhere to federal regulations to maintain their tax qualification. A QDRO is the instrument by which the pension plan assures that all E.R.I.S.A.-mandated protections appear in the order splitting its benefits.

In years past, it was not uncommon for large employers to require a QDRO to divide pension benefits, 401(k)-type IRAs, and deferred compensation accounts they offered their employees. However, the modern trend is to allow non-pension retirement accounts and assets to be less formally divided.

Living Trusts and Divorce

Another situation that warrants attention is when the family has established a living or revocable trust (sometimes referred to as an intervivos trust). Without going into the detail necessary to outline how these should be structured before dissolution of marriage or adjusted after separation, it is important to know that certain actions must be undertaken to achieve the proper division of any asset or property held under the title of the family’s living trust.

If you have not already done so, the title to any asset or property the family wishes to include under the protection of a living trust must be transferred to the trust. Then, after the spouses agree or the court orders the trust asset(s) divided, the parties will need to have those assets, or their shares of them, transferred back into their own names.

Taxation and Timing Considerations

While California law governs the equitable division of marital assets, federal tax law plays a significant role in determining how retirement assets are distributed. Issues such as early withdrawal penalties, rollover eligibility, and tax-deferral protections can significantly impact the value each spouse receives.

• A properly drafted QDRO allows funds to be rolled into an IRA without immediate taxation.
• If funds are withdrawn directly, standard income tax and penalties may apply.
• The timing of division (pre-retirement vs. post-retirement) can affect the calculation of benefits.

Spouses should also understand how survivor benefits and remarriage may affect ongoing pension entitlements.

Comparative Analysis: California vs. Other States

California is a community property state, which means retirement accounts and pensions earned during the marriage are generally split equally. In contrast, many other states follow equitable distribution principles, where judges divide assets based on what they consider fair, which may not be a strict 50/50 split.

For divorcing spouses who have moved across state lines or hold assets in different jurisdictions, understanding these differences is critical. A pension division in California may produce a dramatically different outcome than in a state like New York or Florida.

Conditional Scenarios in Pension Division

What If a Spouse Dies Before the QDRO Is Finalized?

If a spouse dies before a QDRO is approved, the surviving spouse may lose entitlement to pension benefits unless survivor benefits were clearly designated. This makes the timely filing of QDROs essential.

What If One Spouse Remarries?

Remarriage does not generally affect the right to pension benefits earned during a prior marriage, but it may impact survivor elections and long-term health care benefits tied to the plan.

Long-Term vs. Short-Term Marriages

The length of the marriage plays a key role in benefit division. Long-term marriages (10 years or more) may trigger Social Security benefits eligibility for the ex-spouse, while shorter marriages may reduce the share of retirement contributions subject to division.

Post-Separation Contributions and Appreciation

California law allows spouses to argue over whether contributions or gains made after separation are community or separate property. This can significantly affect high-growth investments, such as stock portfolios or rapidly appreciating pensions.

Government and Military Pensions

The article above notes that government-sponsored pensions are subject to additional rules. Some of the most common include:

• CalPERS and CalSTRS: California public employee and teacher retirement systems have unique formulas and survivor benefit structures.
• Military Pensions: Governed by the Uniformed Services Former Spouses’ Protection Act (USFSPA), which has distinct rules for eligibility and division.
• Social Security Benefits: Not directly divisible in divorce, but spousal eligibility rules apply for long-term marriages.

Each of these requires specialized legal and financial guidance to ensure compliance.

Division of Stock Options, RSUs, and Other Financial Assets

In addition to pensions and retirement accounts, many California divorces involve complex financial assets such as stock options, restricted stock units (RSUs), executive compensation packages, annuities, and Health Savings Accounts (HSAs).

• Stock Options & RSUs: May require valuation experts to determine the marital vs. separate portions.
• Annuities: Division depends on ownership structure and payout terms.
• HSAs: While technically medical accounts, funds accumulated during marriage may also be subject to division.
• Federal Thrift Savings Plan (TSP): Federal employees’ equivalent of a 401(k), which requires its own division order (similar to a QDRO).

Mistakes to Avoid in Dividing Retirement Assets

Common mistakes include failing to obtain a QDRO before finalizing divorce, overlooking survivor benefits, ignoring tax liabilities, mischaracterizing post-separation contributions, and attempting informal divisions without court recognition. Correcting these mistakes later can cost tens of thousands of dollars and prolong the financial impact of divorce.

Practical Steps for Dividing Retirement Assets

The process often involves:

• Identifying and inventorying all accounts.
• Determining community vs. separate property portions.
• Filing joinder motions when necessary.
• Drafting and submitting QDROs or equivalent orders.
• Confirming plan administrator approval before judgment.
• Executing transfers or rollovers.

FAQs on Pensions and Divorce in California

Do I lose my pension if I get divorced?

No, but any portion earned during marriage is community property and subject to division.

How much of my retirement will my spouse get?

Typically, half of what was earned during the marriage, but separate property contributions remain with the original spouse.

Can my ex-spouse still claim my retirement if they remarry?

Yes, remarriage does not eliminate entitlement to pension benefits earned in the prior marriage.

What happens if my spouse dies before a QDRO is filed?

If survivor benefits are not designated, the pension rights may be lost. Early filing is critical.

How long does it take to get a QDRO approved?

It can take several months, depending on the complexity of the plan and whether both spouses agree.

How much does a QDRO cost in California?

Costs vary but often range between $500 and $2,000, depending on the complexity and whether experts are required.

Who drafts the QDRO—the lawyer or the plan administrator?

Generally, family law attorneys draft QDROs, but they must be reviewed and approved by plan administrators.

Can pensions be divided without going to court?

No. Court orders are required for pensions and most retirement accounts to ensure compliance with federal and state laws.

Get Legal Help

In closing, allocating pension and retirement assets in a dissolution of marriage is not, on the whole, terribly complex. However, it does involve some formalities that must be observed to accomplish a proper division and prevent costly mistakes. Laws differ across jurisdictions, timelines matter, and technical orders like QDROs must be carefully drafted to ensure enforceability.

If you are facing divorce and need guidance on dividing pensions, retirement accounts, or other complex assets, the experienced attorneys at Reape Rickett can help. Our team has decades of experience handling California family law matters, including pension divisions, QDROs, and high-net-worth asset settlements.

Visit Reape Rickett to schedule a confidential consultation today and protect your financial future.