Pension Rights in California Divorce
If you have a pension, or your spouse does, the prospect of dividing it during a California divorce can add further stress. California law views most benefits earned during marriage as community property, meaning they are typically split evenly upon divorce. However, pension rights can be complicated to assess and divide fairly.
Dividing Pensions in California
A pension is a retirement account into which an employer makes regular contributions on behalf of an employee. It’s designed to provide a steady stream of income in retirement. There are two main types of pensions:
Defined Benefit Plans
This is the more traditional type of pension. The employer promises to pay a specific monthly benefit upon retirement, calculated based on factors like your years of service, salary history, and a set formula. Since the payout is predetermined, the employer holds the risk of making sure the plan has enough funds to meet future obligations.
Defined Contribution Plans
These plans, such as 401(k)s and 403(b)s, are increasingly common. With defined contribution plans, the employer and/or the employee make regular contributions to an individual account. The retirement benefits you receive depend on how much money is in the account and how well the investments within it have performed. Unlike defined benefit plans, the employee bears the risk of ensuring their account grows enough to fund their retirement.
Understanding whether you or your spouse have a defined benefit plan, a defined contribution plan, or both is critical during a California divorce, as these are treated differently in asset division. Dividing a pension in California involves several steps and considerations that are best handled with the assistance of an experienced family law attorney. Here are the most common ways pensions are divided during divorce:
The “Time Rule”
This is the standard method for dividing defined benefit pension plans. In essence, it determines the percentage of the pension that belongs to the community (and thus, subject to division). A formula is used to calculate this community property portion. It considers the number of years the employee-spouse worked and accrued benefits during the marriage divided by the total number of years of employment under the pension plan.
Cash-Out
Sometimes, it may be preferable for one spouse to retain their entire pension interest. In this situation, the other spouse may agree to “cash out” their share of the pension. This means they receive other assets of equal value instead of a future share of pension benefits. This can be beneficial when couples have other significant assets to divide, or if one spouse wants the security of an immediate asset rather than payments in the future.
“If, as, and when” Payments
This option allows the non-employee spouse to receive a specified portion of each pension payment as it’s received by the employee spouse. For example, if a QDRO directs that the non-employee spouse is entitled to 50% of the pension payments, they will receive half of each payment that the employee spouse collects after retirement.
Protecting Your Future: Why You Need a Skilled Family Lawyer
Pension division in a California divorce can impact your financial stability well beyond the dissolution of your marriage. Failing to understand the complexities or negotiate an equitable split could result in substantial losses. An experienced family law attorney can advocate for your best interests and guide you through the process. They can ensure a fair valuation of your pension, which is crucial for protecting your financial security in retirement. Your attorney can also help minimize taxes on pension benefits when they are divided or distributed. Lastly, they bring legal skill to navigate the complexities of pensions, QDROs, and other relevant legal matters, ensuring your pension rights are fully protected.
Your Long-Term Financial Security Matters
At Pintar Albiston Attorneys at Law, we recognize the gravity of asset division in a divorce, especially when retirement savings are involved. Our dedicated team of family law attorneys in Los Angeles possess extensive experience in handling complex pension division cases. We work tirelessly to protect our clients’ rights and help them achieve fair outcomes.
If you’re going through a divorce in California, don’t jeopardize your future. Contact Pintar Albiston Attorneys at Law today for personalized guidance on your pension rights and other divorce-related concerns.