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What happens to retirement accounts and investments during divorce?

by | Jun 25, 2021 | Asset Division

You’ve worked hard to build up a stable financial future for your family. You’ve built up a considerable retirement account, and you’ve carefully chosen investments that can grant you passive income streams in your old age. Now that divorce is on your doorstep, you might be wondering if there’s anything you can do to safeguard these assets from division, or if the court will take them away from you to give to your spouse.

How California divides marital assets

California is a community property state. This means that, if property division is left up to the court, they will first divide all of your assets into marital property and separate property. Then, they will let each spouse keep their separate property, and they will divide all the marital property into two equal portions.

Separate property is generally property that each spouse had before getting married, unless it became marital property (such as a house that one spouse owned before getting married and that became the family dwelling). Marital property is anything that either spouse obtained during the marriage, with a few exceptions.

The court will classify your retirement accounts and investments in the same way as your other assets. In other words, the portion of your retirement accounts that accrued during your marriage count as marital property, and are subject to division, while anything you contributed to the accounts before your marriage will remain your separate property.

Collaborative divorce and mediation

If you and your spouse are in agreement, you can hire attorneys to negotiate your own divorce agreement to present to the court. That way, you can be in control of your asset division, and you can negotiate a situation that both spouses can be relatively happy with. This is called a collaborative divorce.

If you and your spouse are negotiating the division of your assets, you might be able to keep all or most of your retirement accounts and investments. To do so, you will have to offset the value of those assets by offering your spouse something that they value more. For example, your spouse might be willing to let you keep your 401(k) intact in exchange for keeping the family home or receiving spousal support for a certain number of years.

If left up to the court, you will likely lose half of the investments that you worked so hard to accrue over the course of your career. Through collaborative divorce, you and your attorney stand a chance of negotiating a more favorable outcome for yourself.