You have been married for 20, 30, or maybe even 40 years. You thought you and your spouse would be together forever, but the future is uncertain and sometimes forever turns into divorce instead.
If you are at or nearing retirement, you may worry about how a divorce will affect you financially at this age. After all, you have likely saved a hefty amount in retirement funds that you were both depending on to support you for the rest of your life. What happens to these retirement funds if you divorce?
Retirement and divorce
If you are not careful, divorce can derail your retirement plans. Your income may have moved from a dual income to a single income. You may be paying alimony post-divorce, payments that may not end until the receiving spouse dies or remarries. Simply put, your entire financial situation has changed.
Property division laws play a part in your retirement assets post-divorce. California is a community property state for property division purposes. This means that anything you and your spouse purchased or earned while married will be split evenly between you, absent a prenuptial agreement or other specific instructions. This includes retirement accounts.
QDROs and retirement accounts
To divide a 401(k) or pension, you need a qualified domestic relations order (QDRO). A QDRO is separate from your divorce decree. It is an order that gives you a right to a portion of your ex’s 401(k) or pension.
QDROs work in two ways. One way they can work is to award a spouse a separate interest in the balance of the 401(k) or pension. The second way they can work is to give a spouse a share in the payments coming from the account.
QDROs are complex and many people do not have the experience to draft one on their own. Because so much is at stake financially when it comes to a late-in-life divorce, those facing one will likely want to make sure they seek the professional help necessary to protect their rights to their share of the marital retirement assets.