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Divorce and retirement accounts

On behalf of Law Office of Ann A. Thomson, A Professional Law Corporation posted on Thursday, September 26, 2013.

Divorce raises many emotional and financial issues for spouses, such as that of property division. Community property states like California operate under the assumption that all income and capital gains earned during the marriage are the equal property of both spouses. In particular, retirement accounts may grow by thousands or even millions of dollars during the course of a marriage. Knowing how to handle these accounts might help spouses reach an amicable decision regarding their property division and distribution.

One significant pitfall of a retirement account during a divorce is taxes. In some situations, a spouse may incur a tax penalty if the transfer is not handled correctly. An article on the subject stated that timing is critical; if a spouse transfers funds before the divorce is final and the original account owner of the plan is younger than 59.5 years old, the owner may be subjected to a 10 percent early withdrawal penalty. To avoid problems with taxes and penalties, the IRA transfer should be completed in the manner outlined in the divorce decree or the couple’s property settlement agreement. Transferring assets from one IRA to another IRA could help eliminate potential pitfalls. Additionally, contacting the financial institution that acts as the custodian of the IRA might help provide clarity to ensure that the transfer will not cause taxes or penalties to arise.

Individuals should keep clear records regarding their transfers just in case they are ever challenged in court. They should also update their beneficiary designation for each retirement account with a new beneficiary designation form in order to ensure that their wishes are carried out.

A California family law attorney may be able to help individuals reach an amicable decision regarding some terms of their divorce. The attorney may also be able to provide suggestions regarding fair property division and the distribution of retirement accounts. Seeking an out-of-court settlement may ease the divorce for all parties involved.

Source: Fox Business, “How to Split up Retirement Assets in a Divorce“, Marilyn Bowden, September 16, 2013


From offices in Seal Beach, the Law Office of Ann A. Thomson serves clients throughout Southern California in communities such as Seal Beach, Santa Ana, Brea, Yorba Linda, Fullerton, Corona Del Mar, Costa Mesa, Newport Beach, Irvine, Laguna Beach, Dana Point, Mission Viejo, San Clemente, San Juan Capistrano, Anaheim, Fountain Valley, Garden Grove, Long Beach, Huntington Beach, Norwalk, Torrance, Rancho Palos Verdes and Los Angeles.