How do community property states divide retirement accounts?

On Behalf of | May 8, 2024 | Property Division

In community property states like Washington, the law views most property acquired during a marriage as belonging jointly to both spouses. Community property rules aim to divide marital assets equally between spouses in a divorce.

Splitting a retirement account is not as simple as withdrawing cash from a bank. When a married couple divorces in Washington, the court must divide their retirement accounts according to community property principles. Here are some tips that can help you through the process:

Identify your accounts

You must identify and value all retirement accounts as of the date of divorce or legal separation. After listing all retirement accounts, you must classify them as separate or community property. Remember, only the portion of your retirement accounts that you contributed and grew during your marriage are subject to division.

If you funded your retirement accounts during the marriage, then both you and your spouse have a rightful claim to a portion of these funds. Funds contributed before your marriage or after separation remain your separate property.

Determine the value of the community portion

Calculate the amount contributed and any appreciation or depreciation during the marriage to ensure the values are accurate and fair. The court must calculate the portion of community property subject to division. The court has several options for dividing community property retirement funds:

  • Cash-out: One spouse takes the cash value while the other keeps the account intact
  • Account transfer: The account gets split into two separate accounts for each spouse.
  • Offset: One spouse keeps the entire retirement account while the other receives other community assets of equal value.

The court aims for a substantially equal division. However, the specifics depend on factors like account types, tax implications and the couple’s circumstances. Know all the determining factors and options available so you can make informed decisions.

Get a court order

For certain types of retirement accounts, like a 401(k) or a pension plan, you may need a Qualified Domestic Relations Order (QDRO). Once approved by the court, this legal document directs the plan administrator on how to pay the non-employee spouse their share.

Consider tax implications

Taxes can significantly reduce retirement savings. Be sure to consider the tax consequences of any division strategy.

The division of retirement accounts is a complex process involving federal regulations and state community property laws. You may need the help of an experienced divorce attorney to obtain a fair and favorable property settlement.