When you and your spouse begin talking about divorce, retirement may be the last thing on your mind. However, retirement benefits are community property and must be considered in any divorce settlement. It doesn’t matter how long the marriage lasted.
There are, however, some benefits that are not considered community property and you will have no right to those benefits. These include Social Security payments, Worker’s compensation disability awards and any compensation for injuries while serving in the military. Military pensions are community property, though, so be sure to consider those when you are writing your settlement.
All other types of retirement plans are community property and need to be accounted for in the divorce settlement. If you choose, you can both sign waivers that say you do not want benefits from the other spouse’s retirement plans. You should only sign a waiver if the amount is very little or if you each decide to keep your own benefits and not touch your ex’s. Before you sign away your share, be sure to check into the amount on your own. You do not want to take your spouse’s word for how much is in the account.
There are two ways you can get your share of your ex’s retirement benefits. Many people choose to take the present-day valuation buy-out. This means that you would get cash or other assets right now for the value of the benefits. While this may seem very attractive, be sure to consider the tax implications of a large lump sum. You may want to discuss the situation with a tax professional before you choose this option.
In the other option, the amount of the retirement benefit would be split into two accounts and you will have to wait for your money. Again, talking to a tax professional is probably the best way to decide which option would be better for you. If you have little or no retirement yourself, waiting for this money might be the better choice for you.
If you and your spouse are writing your own agreement, be sure that retirement plans are covered in the settlement before you submit it to the court for approval. It may be rejected if the judge feels all of your community property is not settled in the agreement. Doing it yourself will allow you and your spouse to make the decision instead of it being automatically split in half by the court. There may be better ways to split it when you consider each spouse’s tax situation.
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