When an individual gets divorced in California, all of the property he or she accumulated during the marriage is considered to be the marital property of the couple. This means that, no matter who contributed to a retirement account during the marriage, the funds that accumulated in the account will be subject to division between both spouses.
Once a retirement account is ordered to be divided in the divorce, early withdrawal penalties are not supposed to be assessed for the withdrawal of that portion. It is up to the spouse receiving the funds to file the appropriate forms with the plan administrators for each account held. If the spouse fails to do so, he or she may be taxed while the other spouse is assessed an early withdrawal penalty.
Employer-sponsored plans, 401(k) accounts and pensions all require that a Qualified Domestic Relations Order is filed with the plan administrator. This form tells the administrator the exact portion that should be given to the recipient spouse and how to divide the funds. Spouses may then choose to take the money as a lump sum, roll it into their own retirement account or leave it in the spouse’s account. Individual retirement accounts require a different form called the transfer incident form to accomplish the same goal.
Property division in a high-asset divorce can be extremely complicated. Determining the marital portions of accounts held before the marriage but continued afterward can be tricky. Other issues can include locating hidden assets and accounts that one spouse may be trying to hide. Individuals may want to seek the help of a family law attorney for help with determining the value of their marital estate so they can make sure they receive their fair share.