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In San Diego, many spouses have a retirement account. In a legal separation or divorce, it is important to understand how this is divided by law. There is no distinction in the division of retirements in a divorce or legal separation and the same formula is used. No matter what the length of the marriage in either a legal separation or divorce, there is a community property interest and the only issue is the amount each spouse is entitled to if a retirement was accrued from date of marriage to date of separation.
There are two major types of retirements in San Diego divorce or legal separation cases: defined contribution plan and defined benefit plans. Each has its own individual issues which need to be addressed. No matter which type, the San Diego Superior Court has jurisdiction to divide.
A defined contribution plan is when an employer contributes amounts for the employee. These can also be matching plans or non matching plans or the employee may contribute 100% with no contribution from the employer such as an individual retirement account, Keogh plan, profit sharing plan, annuity and/or 401K plans. The assets, generally, in these plans are pre tax so any division needs to either roll over or, if bought out converted to a true present value now. In many cases, no actuarial is needed and the portion of the non employee spouse can be rolled over into another qualified account. Be very careful not to incur tax consequences and it is prudent to discuss with your certified public accountant first since the penalties for early withdrawal can be significant.
A defined benefit plan is when the amount of the benefit received by the employee is determined by a formula in the employer’s retirement plan. These factors can include the highest salary, age of retirement and years of credited service. Some government plans require employee contributions and some do not. This division may need a qualified domestic relations order in order to accomplish the division and the payments are divided when received by the employee spouse. The community property interest is often referred to as the “time line rule”. The time line rule can be used in different factual scenarios. For employee spouses who were employed prior to the date of marriage, the formula is date of marriage through date of separation over the date of employment to date of retirement. If the employee spouse employment was after the date of marriage, then the formula is date of employment through date of separation over the date of employment to the date of retirement. An example would be, if the spouses were married for 10 years and the employee spouse was employed and obtained retirement after date of marriage for ten years before date of separation, then the community property interest is 100% and each spouse would receive 50%. If the employee was employed and obtained retirement for ten years before marriage and ten years after marriage for a total of 20 years retirement credited years and ten years of marriage then the community property interest is 50% and the member spouse would receive 75% and the non member spouse would receive 25%. Again, it is important to consider any tax consequences.
If you have any questions regarding what your interest is in a retirement plan for division, please feel free to contact us for a confidential consultation.