How California Law Divides Retirement Benefits and Pension Plans

One of the reasons many individuals hesitate to pull the trigger on a divorce action is because they do not clearly understand where the division of assets will leave them financially. This is particularly true as the rate of divorce in California’s older generations is on the rise. This article will discuss some of the basic things you should know if you are considering a divorce at any age.

Community Property

Most Californians know that California is a community property state. Community property in a California marriage is essentially all property acquired during the course of the marriage. Unless there is another reason to divide items differently (such as a valid prenuptial agreement or post-nuptial agreement). In the absence of a prenuptial agreement or postnuptial agreement, all community property will be divided equally in the case of divorce.

How Does this Work with Retirement Benefits?

All property acquired during a marriage is, presumably, community property. Accordingly, the labor that was expended during the course of the marriage, and the fruits of that labor, is also community property because it added value to the marital estate. By this logic, retirement benefits are a type of deferred compensation for labor that was spent throughout a person’s career. As an asset that was accrued during the course of the marriage, this community property would be divided between the couple.

However, one complication to the matter is that, very often, a person’s career will last longer than their marriage. This means that some retirement benefits are accrued during the course of the marriage, but some are accrued after. This means that retirement benefits and pension plans are very often considered “mixed” community property and a separate property asset.

So How Does All of this Play Out?

Community property rights to one spouse’s retirement or pension benefits only accrue from the date of the start of the marriage until the date of the separation. Any retirement or pension benefits accrued by one spouse prior to the commencement of the marriage will be considered separate property.

An important caveat or exception to these rules is that federal law will cover the divestment of some pension plans. Federal law will always preempt California state law. Therefore, when there is a case where a federal law will govern the distribution of the asset, the federal law will control. An experienced divorce attorney and/or property division attorney can help to analyze your case and navigate you through what to expect as your case moves forward.

When dividing retirement benefits, it is usually permissible to divide via a non-pro rata division of property. This can mean that a working spouse can keep all of their retirement benefits if the other spouse is paid to compensate for the other spouse’s interest in that community property. This same idea might also be accomplished by strategically dividing the remaining assets. For example, to offset the lost interest in the retirement or pension benefits the working spouse could offer to forfeit their own interest in another asset they would otherwise be entitled to. This could be something like a car, house, valuable collection, etc.

Contact Cardwell, Steigerwald Young

The San Francisco property division lawyers at Cardwell Steigerwald Young understand the complexities surrounding asset division in divorces. Contact our office today to speak with an experienced attorney concerning your own situation.

Sources:

aarp.org/home-family/friends-family/info-2023/gray-divorce-trend.html

courts.ca.gov/partners/documents/pensions_divorce_information.doc