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Dealing with Retirement Funds During Divorce Negotiations

On Behalf of | Apr 24, 2019 | Divorce

Dealing with retirement funds during divorce negotiations is especially important in a “Gray Divorce” or divorce over 50.  While the overall divorce rate in California and around the country has remained fairly stable in recent years, divorces among older couples has increased sharply.  Between 1990 and 2014, the rate of divorces involving people over the age of 50 doubled, and the increase was even more pronounced for people over the age of 65.  While older divorcing couples rarely become embroiled in bitter child custody disputes, negotiations over alimony or spousal support and retirement funds can often become contentious when the parties involved are entering their golden years.

Dealing with retirement funds during divorce negotiations is part of the community property settlement.  The community property laws in California require marital assets to be divided equally, and any retirement funds that accumulated during a marriage will be subject to these rules even if all of the contributions were made by only one of the spouses involved.  Spouses who wish to avoid the strict implementation of community property laws can negotiate their own divorce settlements.

When dealing with retirement funds during divorce negotiations spouses may be wise to concentrate on how much will be left after taxes have been paid.  Retirement plans like 401(k)s and IRAs are taxed when money is withdrawn.  This means that spouses who pay income tax at a higher rate would receive less after taxes when traditional retirement accounts are divided equally.  Spouses should also consider their long-term financial needs before agreeing to swap their rights to retirement funds for real estate or other assets.

Experienced family law attorneys may encourage their clients to avoid potentially heated property division disputes by attempting to negotiate an agreement.  In situations where this is not possible and the couple involved wishes to avoid litigation, attorneys may recommend alternative options such as mediation.