Dividing Retirement Accounts in a California Divorce

In a California divorce, the part of a 401(k), pension or IRA earned during the marriage is generally community property, and the court generally divides it equally between the spouses. Money earned before the marriage falls outside the rule in section 760, which reaches property acquired during the marriage, and sections 770 and 771 make property owned before the marriage, and a spouse's earnings and accumulations after the date of separation, that spouse's separate property. A court order directed to the plan, often called a QDRO, can direct the plan to pay the other spouse's share.

Retirement accounts raise questions that are easy to get wrong: whether everything is split down the middle, whether anything earned before the wedding counts, and whether the divorce papers alone will move the money. Part of the answer sits in a handful of Family Code sections, which apply the same way whether the case comes from Carlsbad Village, La Costa or anywhere else in the city.

This article walks through how California law sorts a retirement account into marital and separate parts, how each type of plan is handled, what a QDRO is, what each spouse must disclose, and how the division is finished after judgment.

How California Community Property Law Applies to Retirement Accounts

Family Code section 760 sets the starting point. Except as otherwise provided by statute, all property acquired by a married person during the marriage while living in California is community property. Paychecks are acquired during marriage, so the retirement contributions taken from them are generally community property as well. Under Family Code section 751, each spouse's interest in community property during the marriage is a present, existing and equal interest.

Family Code section 2550 then tells the court what to do with that property. Unless the spouses agree otherwise in writing or on the record in court, or the law provides otherwise, the court "shall... divide the community estate of the parties equally."

A retirement account does not have to be all one thing. Under Family Code section 770(a)(1), all property a person owned before the marriage is separate property, and under section 771(a), the earnings and accumulations of a spouse after the date of separation are that spouse's separate property. So contributions made before the marriage, and contributions made from earnings after the date of separation, are generally the contributing spouse's separate property. One 401(k) can hold contributions from before the wedding, contributions from the marriage, and contributions from after separation, and each part is analyzed on its own. The community portion is often called the marital share. The rest is the separate share.

The date of separation marks the end of the community period for a spouse's earnings. Family Code section 70 defines it as "the date that a complete and final break in the marital relationship has occurred," shown by both of the following:

"(1) The spouse has expressed to the other spouse the intent to end the marriage. (2) The conduct of the spouse is consistent with the intent to end the marriage."

The court considers all relevant evidence in deciding that date. With a retirement account, a disputed date of separation can change how many months of contributions fall on the community side, because section 771(a) treats earnings and accumulations after that date as separate property.

One point is easy to get wrong: the date of separation is not the date the account is valued. Under Family Code section 2552, the court values assets and debts as near as practicable to the time of trial. On 30 days' notice by the moving party to the other party, the court for good cause shown may value all or any portion of the assets and liabilities at a date after separation and before trial. The broader rules are covered in the site's guide to property division in Carlsbad.

Types of Retirement Accounts and How Each Is Treated

The kind of plan matters because different plans hold value in different ways.

Defined-contribution plans. A 401(k), 403(b) or profit-sharing plan has an account balance. Money goes in, it is invested, and the balance rises or falls. The marital share comes from contributions made during the marriage and before the date of separation (sections 760 and 771(a)).

Defined-benefit plans. A traditional pension has no balance to split. It promises a monthly payment in the future, usually based on years of service and salary.

IRAs. An individual retirement account is not an employer plan. Under 26 U.S.C. § 408(d)(6), the transfer of an individual's interest in an IRA to a spouse or former spouse under a divorce or separation instrument is not considered a taxable transfer, and the interest is treated from the time of the transfer as the spouse's own IRA. For this rule, a divorce or separation instrument is a decree of divorce or separate maintenance or a written instrument incident to such a decree (26 U.S.C. § 121(d)(3)(C)(i)).

California public plans. Pensions for public employees, such as CalPERS and CalSTRS, are public plans. Section 2610(a)(3) allows, on the nonemployee spouse's agreement, the division of accumulated community property contributions and service credit under listed Government Code and Education Code provisions. CalPERS publishes plan information at calpers.ca.gov.

Military retirement. Military retired pay is divided under a federal law, the Uniformed Services Former Spouses' Protection Act, 10 U.S.C. § 1408. Under section 1408(c)(1), a court may treat disposable retired pay either as property solely of the member or as property of the member and the member's spouse "in accordance with the law of the jurisdiction of such court." After effective service of a court order that specifically provides for payment of an amount of disposable retired pay in a division of property, the Secretary concerned pays that amount directly to the former spouse (section 1408(d)(1)), but not to the extent the payment results from treating the pay as property unless the spouses were married for 10 years or more during which the member performed at least 10 years of service creditable toward retired pay (section 1408(d)(2)). The total disposable retired pay payable under all such court orders may not exceed 50 percent (section 1408(e)(1)).

Whatever the plan type, Family Code section 2610 directs the court, with limits stated in the section, to make whatever orders are necessary or appropriate so that each party receives the party's full community property share in any retirement plan, public or private, including survivor and death benefits.

What a QDRO Is and Why Plans Ask for One

A QDRO, short for qualified domestic relations order, is the name commonly used for a court order directed to a retirement plan that pays part of one spouse's benefit to the other spouse.

Family Code section 2610(a)(4) lets the court order a retirement plan to make payments directly to a nonmember party of that party's community property interest in retirement benefits. Section 2610(a) also covers orders for benefits payable upon or after either party's death and orders for a party to elect a survivor benefit annuity when the plan provides for that election. Section 2610(b) sets two limits: a court cannot order a plan to increase the benefits it provides, and, except as paragraph (a)(3) allows and unless the plan so provides, it cannot order payment of benefits to a party before the member retires.

Federal law explains the name. Under 29 U.S.C. § 1056(d)(3)(B), a qualified domestic relations order is a domestic relations order that creates or recognizes an alternate payee's right to receive all or a portion of the benefits payable to a participant under a plan, and that meets the content requirements described below. A domestic relations order is any judgment, decree or order, including approval of a property settlement agreement, that relates to child support, alimony or marital property rights and is made under a state domestic relations law, including a community property law. The employee spouse is the participant. Section 1056(d)(3)(K) defines an alternate payee as a spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all or a portion of the benefits payable under a plan with respect to that participant.

A separate order is needed because of the anti-assignment rule. Under 29 U.S.C. § 1056(d)(1), each pension plan covered by that provision must provide that benefits under the plan may not be assigned or alienated. Section 1056(d)(3)(A) applies that rule to the creation, assignment or recognition of a right to a benefit through a domestic relations order, except when the order is determined to be a qualified domestic relations order, and it requires the plan to pay benefits in accordance with any QDRO. That statute is part of ERISA's Title I, and under 29 U.S.C. § 1003(b) Title I does not apply to governmental plans or to church plans for which no election has been made under 26 U.S.C. § 410(d). For governmental plans, church plans and eligible deferred compensation plans under section 457(b), 26 U.S.C. § 414(p)(11) separately treats a distribution made under a domestic relations order that creates or recognizes an alternate payee's right to the benefits as made under a QDRO for purposes of the Internal Revenue Code.

The order itself has content requirements. Under section 1056(d)(3)(C), it must clearly specify the name and last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered; the amount or percentage of the participant's benefits to be paid to each alternate payee, or the manner in which that amount or percentage is to be determined; the number of payments or period to which it applies; and each plan to which it applies. Under section 1056(d)(3)(D), it may not require a plan to provide a type or form of benefit, or any option, not otherwise provided under the plan; may not require the plan to provide increased benefits (determined on the basis of actuarial value); and may not require payment to an alternate payee of benefits that are required to be paid to another alternate payee under an earlier order already determined to be a QDRO.

The plan then reviews the order. Under section 1056(d)(3)(G), when a plan receives a domestic relations order, the plan administrator must promptly notify the participant and each alternate payee of the receipt and of the plan's procedures for determining the qualified status of such orders, and within a reasonable period must determine whether the order is a QDRO and notify them of that determination. Each plan must have written, reasonable procedures for this. While the question is open, section 1056(d)(3)(H) requires the administrator to account separately for the amounts that would have been payable to the alternate payee. If the order, or a modification of it, is determined to be a QDRO within the 18-month period that begins on the date the first payment would be required under the order, the administrator pays those amounts to the person entitled to them. If it is determined not to qualify, or the question is unresolved, within that period, the amounts go to the people who would have been entitled to them had there been no order, and a later determination applies only going forward. Under section 1056(d)(3)(F), to the extent a QDRO provides, the former spouse of a participant is treated as the participant's surviving spouse for purposes of 29 U.S.C. § 1055.

Calculating the Community Property Share

How the community share is worked out depends on the plan and its records, and the calculation is outside what this page covers. Once the community share is known, section 2550 generally divides it equally. Property that is separate under sections 770 and 771 is not part of the community estate that section 2550 divides.

Family Code section 2640 answers a different question: what happens when one spouse put separate money into community property. Under that section, a spouse who traces contributions to a separate source is generally reimbursed for them in the division, without interest, and not beyond the property's net value. The right can be waived in writing. Section 2640 also provides for reimbursement of a party's separate property contributions to the acquisition of the other spouse's separate property during the marriage, likewise without interest and not beyond net value, unless there has been a written transmutation or a written waiver. Section 2640 is about separate money flowing into community property or into the other spouse's separate property. The rule that keeps property owned before the marriage separate is section 770, not section 2640.

Long careers, several employers, plan rollovers and years of work outside California can make the numbers harder to pin down.

Disclosure Requirements: What Each Spouse Must Provide

Under Family Code section 2104, each spouse serves a preliminary declaration of disclosure, signed under penalty of perjury. Subdivision (f) sets the timing: the petitioner generally serves it with the petition or within 60 days of filing the petition, and the respondent serves it with the response or within 60 days of filing the response. Those deadlines can be extended by written agreement or court order.

The declaration must identify all assets in which the declarant has or may have an interest, whether community, quasi-community or separate. Retirement accounts belong on it.

Family Code section 2105 adds a final declaration of disclosure and a current income and expense declaration. Except by court order for good cause, these are served before or at the time the parties agree on property or support issues (other than temporary support), or, if the case goes to trial, no later than 45 days before the first assigned trial date, unless the parties mutually waive the final declaration under the procedure the section sets out. The final declaration must include all material facts about how assets and liabilities are characterized and valued.

Leaving a retirement account off is serious. Perjury on either declaration may be grounds for setting aside the judgment, in whole or in part. Separately, Family Code section 1101 gives a spouse a claim for any breach of the fiduciary duty that impairs that spouse's one-half interest in the community estate, and lets the court order an accounting of the spouses' property.

The Division Process

A Carlsbad divorce is generally heard at the Superior Court of California, County of San Diego, North County Regional Center, 325 South Melrose Drive, Vista, CA 92081. That is where the judgment is generally entered. The broader sequence is laid out in the California divorce process timeline.

A judgment or settlement can name each retirement account and state how the community share is divided. Section 2610 then lets the court make the orders needed so that each party receives the party's full community property share, including orders directing a plan to pay a nonmember party directly.

Common Situations That Complicate the Division

Work in another state can matter. Under Family Code section 125, quasi-community property is property acquired while living elsewhere that would have been community property if the spouse had been living in California. Retirement savings earned during a marriage spent partly outside California may fall into that category.

With several accounts, spouses may agree to offset one account against another, or against other property, instead of dividing each one.

A pension of a spouse who has not yet retired adds a timing question. Section 2610 generally bars an order requiring a plan to pay benefits before the member retires, unless the plan allows it or a specific exception applies. The order can also address survivor benefits under the same section.

What to Look for When Handling Retirement Accounts in a Carlsbad Divorce

Records come first. Statements covering the period from before the marriage to the present show what each account held and when.

Plan type comes next. Each account is generally a defined-contribution plan, a defined-benefit plan, an IRA, a government plan or military retirement.

The firm practises California family law only. It serves Carlsbad and North County, including Oceanside, Vista, San Marcos, Encinitas, Solana Beach, Del Mar and Rancho Santa Fe. A wider view of how these issues fit into a case is on the site's page on divorce in Carlsbad, and the state's California Courts self-help pages describe the divorce process in general terms.

Talking Through Retirement Accounts in a Divorce

Retirement accounts are where small facts carry large weight: a disputed date of separation, a few years of work in another state, a loan taken mid-marriage, or a pension that has not started paying. A consultation is a place to raise those questions. The firm practises California family law only.

To talk with the firm about retirement accounts in a divorce, call Carlsbad Family Law Advocates at (760) 840-5102 for a confidential consultation.