How Not to Mess Up Retirement Account Division When Divorcing
Are all retirement accounts divided 50/50 in a divorce? In California, if you can identify and calculate the portion of your account that is your separate property, then often only the community portion is divided 50/50. If you had retirement funds before you got married or contributed to a retirement account after your date of separation, this blog post is for you!
How to Calculate Separate Property in a 401(K)
In this interview with Attorney-Mediator Scott Levin, I discuss how individuals divorcing in California can determine what portion of their 401k (or other employer-provided retirement plan) is separate property and not subject to division with his or her spouse.
Mistakes Made When Dividing Retirement Accounts Using QDROs
If an employer-provided retirement account such as a 401(k), 403(b), TSP, pension, or other type of defined contribution or defined benefit plan is part of your marital estate, you may need to hire a specialized attorney to draft a Qualified Domestic Relations Order (QDRO) or Domestic Relations Order (DRO) in order to divide the account and direct a portion to be awarded to your ex-spouse.
Frankly, most people consider this stuff to be boring and arcane (except perhaps the QDRO attorneys themselves) and since it is difficult to understand, tons of people make mistakes worth thousands and often tens of thousands of dollars.
When dealing with pensions in particular, mistakes are often worth hundreds of thousands of dollars. Think of it this way...if your spouse is to receive $5,000 per month when he or she retires and collects that pension for 30 years, that is worth $1.8M over 30 years (although the present value would be significantly less, a topic I plan to address in a separate blog post). If you are entitled to a portion of that pension, you must ensure the QDRO process is done correctly otherwise you could be severely short-change.
I see these mistakes all the time and that's why it is important to hire a certified divorce financial analyst while you are negotiating a divorce settlement. A CDFA will ensure you understand the impact of including (or not including) gains and losses in your marital settlement agreement as well as factor in the after-tax values of "trading" retirement accounts for some other asset of value, such as a house.
A CDFA will educate you on these issues before you ask an attorney to draft your QDRO and before you sign a marital settlement agreement.
Laurie Itkin is a financial advisor, wealth manager, and certified divorce financial analyst (CDFA). She is also the author of the Amazon best-seller, Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment. In both 2017 and 2018 Investopedia named Ms. Itkin one of the top 100 most influential financial advisors in the country. Through her financial consulting company, The Options Lady, she provides divorce-related financial planning and analysis to individuals and couples throughout all stages of the divorce process, with a specialty in California divorces. She is a member of the Association of Divorce Financial Planners (ADFP) and is certified by the Institute for Divorce Financial Analysts (IDFA). Laurie has been quoted in the New York Times, Wall Street Journal, Chicago Tribune, and San Diego Union Tribune. She has also appeared as a guest on broadcast news channels.