Community Property Standard
The community property standard assumes that both spouses contribute equally to a marriage, no matter who might earn the most money during the course of the marriage. Property owned before the marriage, obtained during the marriage by inheritance or gift, or obtained after the spouses separate is considered the separate property of each spouse, not community property. As a result, such property is not subject to division upon divorce under the community property law of California.
Division of Property at Time of Divorce
When a divorce case is filed in California, most of the property obtained by a couple while married can be divided, either by their own agreement or by order of the court. For example, bank accounts and other investments can be totaled up and distributed between the spouses in equal shares. Some assets cannot be so easily divided at the time of a divorce without negative financial consequences. A retirement plan, with penalties for early withdrawal, represents one type of asset that often cannot readily be divided at the time of a divorce case.
Property Settlement Agreement
In California, courts prefer spouses reach a settlement in divorce cases. In such a circumstance, the parties enter into a property settlement agreement, a contract that spells out how the assets and debts of the parties are to be divided, including any retirement plans. A spouse can agree to waive an interest in a retirement plan, which can be done in exchange for a larger share of another asset or an increase in alimony. A divorce court approves a property settlement agreement provided that the contract appears fair to both spouses.
Property Division and Judge's Discretion
Absent a property settlement agreement, a judge must exercise his discretion in determining how the property of the parties is divided. The judge must generally follow the parameters of California's community property law, but can make some adjustments in the interests of justice and fairness. As with a property settlement agreement, the judge's order will divide any retirement plans.
Qualified Domestic Relations Order
Avoiding the penalties associated with an early withdrawal from a retirement plan is accomplished through the use of a Qualified Domestic Relations Order, or QDRO. The QDRO establishes the percentages of retirement benefits that are paid to each spouse when the plan reaches maturity.