Defined Benefit Plans and Divorce

rings and divorceWhen couples go through a divorce, some of the most important aspects to consider are child custody, child support, alimony (or spousal maintenance), and property division. When these couples think of property division, they may most often consider physical items such as cars, their home or homes, furniture, and other assets, including money. However, they may not consider all “property” in the matter. This can include things such as each spouse’s retirement plans, pension plans, and any other defined benefit plan. For many, these items aren’t considered at all, but failing to address them can end in an unfavorable result when the divorce is finalized.

Not many couples are aware of how these types of plans affect a divorce and what is divided. Between pension plans, retirement plans, and other employment benefits, there are many factors to consider. At Chung & Ignacio, our Rancho Cucamonga divorce attorneys can help explain how these defined benefit plans are divided in divorce in California. It is important to understand how they are divided, what you should do, and how to move forward. Our team has provided the information you need so you’re not caught off guard during the process.

Dividing Retirement Plans

During the division of the retirement plan, a qualified domestic relations order (QDRO) will be required to show the ways in which the assets will be divided by the two parties. This form can be used for division of thrifty savings plans, 401(k)s, 403(b)s, employee stock ownership plans, profit-sharing plans, tax-sheltered annuities, and more. Many of the plans detail how the benefits are to be divided. Because California is a community property state, it is most likely that the benefits will be divided 50/50 between the amounts earned during the marriage.

In some cases, it is advisable to stop contributing to the retirement plan as soon as one spouse files for divorce. Any additional contributions to the retirement account would also be divided, and because divorces can take months or even years to be finalized, the contribution amounts can reach thousands of dollars depending on the financial situation.

Dividing Pension Plans

Pension plans are generally divided in either a reservation of jurisdiction or a cash out. The reservation of jurisdiction is the most common way, and makes it so the one spouse receives a percentage of each pension check after the employed spouse retires. The amount would be determined by dividing the number of years the spouses lived together as a married couple by the number of years the employed spouse participated in the pension plan.

With a cash-out, an actuary will provide an evaluation of the pension plan to determine a present value which would allow the employed spouse to receive the entire pension plan with the other spouse receiving other assets equal in value to what they would have received from the divided pension plan.

Property Division in California

This is one of the more difficult areas of a divorce to endure because it can become very contentious. It is important to understand how the process works and how it can impact your divorce. When these plans are defined and the spouses come up with an agreement regarding how the property will be divided, it can be beneficial for all parties involved, as well as eliminate some of the arguing between divorcing couples.

At Chung & Ignacio, we want to help you get through property division as smooth as possible. We are aware of how difficult this can be for you. Our Rancho Cucamonga divorce lawyers aim to keep you up to date on everything going on your case and make sure your rights are protected during property division. Call us today if you have questions regarding a defined plan and property division during divorce.

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