One of the major concerns in any divorce – second only to child custody concerns – is how your community property (also known as marital property) will be divided between you and your divorcing spouse. While the division of some assets is fairly straightforward, many people have concerns when it comes to their employee benefits.
Many employers will offer options for their employees to participate in an employee benefit programs in an effort to reduce their salary. Many employee benefit plans provide a great tax advantage for both employers and employees.
Most employee benefits are considered to be community property in California. This includes employer pension plans, stock ownership plans, profit-sharing plans, and independent retirement plans. Couples getting a divorce in California split community property equally, unless there is a prenuptial agreement stating a different split in benefits.
If you are seeking to get a divorce in California, you need to have an understanding on how employee benefit and retirement plans will be affected.
We have learned through experience that many couples have a lot of questions about how their employee benefits will be divided. If you are experiencing such concerns, it's time to consult with a knowledgeable Los Angeles divorce and family law attorney at our law firm in order to gain a better understanding of this important aspect of your divorce.
Your Employee Benefits
If you work outside the home as someone else's employee, you likely receive employee benefits that sweeten the value of your job without increasing your wages. For example, many employee benefit plans provide immensely valuable tax advantages.
It's important to distinguish between those employee benefits you or your spouse earned during the course of your marriage and those you both brought with you into the marriage.
For example, if you've been earning employee benefits for 15 years and you've been married for the last 10 years, those benefits you acquired during your marriage are subject to division in divorce while the assets you accrued in your first 5 years of employment belong to you alone. In other words, it's complicated.
Employee Benefits Are Community Property in California
California is a community property state, which means that the assets you amass during the course of your marriage will typically be divided equally between the two of you in a divorce. Property that you bring with you into the marriage, on the other hand, will generally remain your separate property. As such, the majority of employee benefits qualify as community property:
- Employer pension plans and cash-balance plans
- Defined contribution plans, including 401(k)s and 403(b)s
- Employee stock ownership plans
- Employer profit-sharing plans
- Stock bonus plans
- Independent retirement plans, including IRAs, SEP IRAs, and Roth IRAs
All of these are examples of community property in California, and divorcing couples are required to split such assets evenly unless otherwise specified – in a prenuptial agreement, for example.
Divorce and Valuing Employee Benefits
It's all well and good to describe your employee benefits as marital property, but determining how they will be divided is another story entirely. If your portfolio of employee benefits is extensive, its division is likely to be extremely complicated and to require extensive processing.
The type of benefits you possess affects the level of difficulty involved. For example, placing a value on a defined contribution plan is usually more straightforward than doing the same for a defined benefit. Your 401(k) account reports a definitive value on each monthly statement.
With a defined benefit plan, however, you'll likely need the professional services of an actuary to either determine the plan's present value or to calculate its predicted future value.
The Actual Division of Employee Benefits
When it comes to the actual division of employee benefits in a California divorce, things can become very complicated very quickly. There are two basic options that most divorcing couples implement:
- The first option is to employ a legal mechanism known as a Qualified Domestic Relations Order (QDRO) to assign a predetermined percentage of one spouse's retirement plan to the other spouse. In such an instance, the receiving spouse can begin receiving his or her ex's retirement benefits as soon as that ex becomes eligible for retirement – irrespective of whether he or she actually retires at that time. A QDRO is an extremely nuanced tool that requires considerable legal finesse to ensure that your rights are preserved.
- The second option is known as a cash out, and it involves calculating the present value of the employee benefits in question – which usually requires an experienced actuary – and amounts to awarding the receiving spouse with community property that is equal in value to the employee benefits. In such a situation, the spouse with the employee benefits retains all rights to said benefits.
It should be noted that a QDRO can be a complicated document. There are many retirement plans regulated by the Employee Retirement Income Security Act that prohibit retirement benefits from being assigned to anyone other person other than the employee that earned them. California's community property provisions are pre-empted the Employee Retirement Income Security Act, but a QDRO is an exception to the rule.
It should also be noted that social security benefits are considered separate property in California. The Social Security Act clearly states the right to future Social Security payments is not transferable and there is no QDRO option. This means regardless of the Social Security benefits acquired during marriage, they are the separate property of the spouse. In summation, the division of employee benefits in a California divorce is nothing if not complicated.
Experienced Los Angeles Divorce Attorney
If you have concerns about the division of employee benefits, consult with a Los Angeles divorce lawyer at our law firm. The determination of how employee benefits that accrued during the course of your marriage will be divided in your divorce can play a pivotal role in your financial future.
Our skilled divorce and family law attorneys faithfully serve clients throughout Southern California, including the greater Los Angeles area and the San Fernando Valley. We are committed to aggressively advocating for your case's best possible resolution. To schedule a free consultation, contact or call us at 818-528-3471 today.
Furman & Zavatsky
15821 Ventura Blvd #690
Encino, CA 91436