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Dividing employee benefits during divorce

On Behalf of | Mar 14, 2024 | Property Division

Divorce is a complex process that involves untangling not just emotional ties but also financial ones. Dividing marital assets can be straightforward for some things like furniture or bank accounts, but employee benefits can be trickier.

Getting a sense of how employee benefits are handled during divorce can help you understand what to expect and how to navigate this component of asset division more effectively.

Understanding marital and separate property

The key to dividing employee benefits lies in understanding the concept of marital and separate property. Marital property refers to assets and debts acquired during the marriage. Separate property, on the other hand, encompasses assets and debts acquired before the marriage or through inheritance.

Here’s how this applies to employee benefits:

  • Benefits earned during the marriage: These are generally considered marital property and subject to division.
  • Benefits earned before the marriage: These are considered separate property and not subject to division.
  • Benefits earned after separation: These are typically considered separate property as well.

It’s important to note that California follows community property laws, where all assets and debts acquired during the marriage are considered marital property regardless of who earned them.

Types of employee benefits affected by divorce

Retirement plans are among the most common types of employee benefits that divorce can impact. They include 401(k)s, IRAs and traditional pension plans. The portion of the benefit accrued during the marriage is typically divided between spouses. This may involve a Qualified Domestic Relations Order (QDRO) to facilitate direct payments from the plan to the former spouse.

The value of vested stock options earned during the marriage may also be divided. Unvested options are more complex and may require further negotiation. Furthermore, continuation of health insurance coverage under the former spouse’s plan may be an option, depending on the specific plan.

Negotiating and dividing benefits

There are two main ways to divide employee benefits during divorce. In the first option, the spouses can negotiate a mutually agreeable division of benefits. This is often the preferred approach as it can allow for more control and flexibility. However, if an agreement isn’t reached, it’s up to the court to decide how to divide the benefits based on the case’s specific circumstances.

Dividing employee benefits during divorce can be a complex process, but with proper knowledge and legal guidance, you can approach it with more confidence. An experienced legal team can help you understand your rights and work towards a fair and equitable outcome.