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Protecting retirement accounts during community property division

On Behalf of | Apr 17, 2024 | Divorce |

It is normal for those facing divorce in California to feel quite anxious about the process. Typically, the longer people have been married, the greater their personal holdings and the more conflict there is related to the divorce,  can result in greater anxiety about the outcome of family court proceedings.

Property division can often be a nerve-racking prospect for those in California. The state’s community property statutes generally entail that almost everything earned or acquired during the marriage could be vulnerable to division during divorce proceedings. Those preparing for divorce later in life may worry in particular about dividing retirement accounts and how the division may impact their future financial stability.

How can those facing community property division proceedings protect their retirement accounts?

By consulting with an attorney

Parties facing dissolution can save a significant amount of money by meeting with an attorney or mediator early on to avoid extensive and costly litigation.

By avoiding costly penalties

There are consequences to dividing a 401(k) or other retirement account that offers tax benefits. The amount withdrawn contributes to annual income and increases income tax obligations. Those taking premature withdrawals from retirement accounts typically also have to pay penalties, which could add up to 10% of the amount withdrawn from the account. Filing the right paperwork when dividing an account after a divorce can help spouses eliminate the penalties and tax consequences of sharing retirement savings.

By agreeing to special property division terms

There is never any certainty regarding the outcome of asset division when a judge applies community property standards to a marital estate. However, spouses have the option of negotiating their own arrangements. Someone who prioritizes maintaining most or all of their retirement funds may find that mediation or collaborative divorce negotiations allow them a better opportunity to protect the resources that they may rely on during retirement.

Ultimately, learning about the rules that govern community property proceedings can help people understand what to expect during divorce. Individuals who identify their biggest financial concerns, and seeking legal guidance accordingly, may feel more confident as they prepare for the divorce process.