Community property laws in Washington and your retirement plans

Community property laws in Washington and your retirement plans

During your marriage, you and your spouse probably had to start thinking about your retirement and the end of your lives. You probably engaged in both retirement planning and estate planning as a married couple. In other words, your savings and retirement income were created with the understanding that it would be two people living in a single household benefiting from these assets.

That could mean that when you divorce, you won’t have as much to go around as you might have hoped. What is enough to maintain one household comfortably may leave both spouses scrambling for financial stability if they must each maintain their own residence.

Whether you have contributed to an employer-sponsored retirement account or have accrued pension funds throughout your adult working life, you likely have expectations about what you get to retain in the divorce. Unfortunately, your expectations and hopes may not align with how Washington handles property.

Most everything you acquire is community property

When you get married, you combine your legal and financial future with that of someone else. Your income is now both yours and your spouse’s. That entanglement only ends when you divorce, but it can have a profound impact on how you split what you acquired during your marriage.

Even if only one of you worked and that person is the one whose name is on the retirement account, both spouses probably have a claim to share in those assets. The courts will review your assets and debts and then divide your community property fairly, including your retirement account.

Separate property, which includes assets acquired before your marriage, likely won’t wind up divided. However, it’s important to note that it is the date when you earn or acquire an asset that matters, not the name on the account or who signed the receipt. In a retirement account, funds accrued before marriage may remain separate, while everything earned during the marriage is community property.

The courts can divide retirement accounts without penalties

If there is one silver lining to needing to split what you have saved for retirement with your ex, it is the fact that you can do so as part of your divorce without incurring the tax and financial penalties that usually come with making early withdrawals from a retirement account.

By issuing a Qualified Domestic Relations Order (QDRO), the courts can instruct the plan administrator for the retirement account to separate a specific percentage of the total funds into another account without financial penalties.

The courts can split your pension as well

Many workers are defensive of their pension, and rightly so. They have worked at a company for years and likely contributed to a pension fund throughout the course of their employment with the intention of benefiting from those deposits in the future.

Much like with a standard retirement account, while the pension may be only in one spouse’s name, the courts do have the legal authority to split the assets. In some cases, they may allocate other assets whose value would roughly equal one spouse’s share of the pension to the spouse who will not receive the pension. Other times, the courts could choose to order alimony, also known as spousal maintenance, for the duration of the pension as a means of ensuring that both spouses receive a portion of the funds.