When a spouse contributes to a retirement account during the marriage, then those contributions are community property. Many options exist regarding the allocation of retirement accounts. If each spouse has contributed comparable amounts to their retirement accounts during the marriage, then it is often agreed that each will keep their own retirement account. If one spouse's account is larger than the others, then it can be decided that a different asset will be awarded to the spouse with the smaller retirement account to "equalize" the difference. (Example: Wife's retirement account is worth $10,000, and husband's is worth $2,000. The spouses might agree that each will receive their own retirement account, but that the husband will receive the car that has no debt (value $10,000), and the wife will receive the car that has an underlying obligation, so that the net value of the car is $2,000 (car value $10,000 with loan of $8,000). When the values of the retirement account and cars are added together, the overall value is the same.)
In a situation where no "equalization" options exist, the spouses may agree that one spouse will receive a portion of the other's retirement account. When such an agreement is made, additional steps must be taken, and additional orders are sometimes needed.
If the retirement account is through a financial institution, then it will be necessary to contact the financial advisor to find out what forms, if any, are needed to transfer the retirement account and to avoid any unintended tax consequences. It is likely a rollover will be required. You should ask your financial advisor if that is needed, and what forms are required to make that happen. This inquiry should be made before the divorce is filed.
If the retirement account that is being divided is one that has been earned through an employer (e.g., pension, 401(K), etc), then it will be necessary to contact the Human Resources office of the employer to find out what forms, if any, are needed in order to properly complete the transfer. This inquiry should be made before the divorce is filed.
If the retirement that is being divided was earned through the military, then specific language must be used in order to clearly identify for the military the amount of retirement pay that is being awarded to the civilian spouse. It is highly recommended that you contact someone at the military base to which you/your spouse is assigned to find out exactly what is needed and what language must be used. This inquiry should be made before the divorce is filed.
If the retirement that is being divided was earned by someone who is in law enforcement or who is a firefighter (LEOFF), then specific language must be used in order to clearly identify the amount of retirement pay that is being awarded to the spouse. It is highly recommended that you contact the Department of Retirement Services to find out the exact language required by them to implement the agreed division of the retirement funds. This inquiry should be made before the divorce is filed.
Even if retirement is many, many years away, the division of any retirement accounts needs to be addressed at the same time as the divorce. Once you and your spouse agree on the way in which the retirement accounts will be divided, we strongly encourage you to consult with a professional (e.g., financial consultant, tax expert, attorney, HR manager) to ensure that your divorce paperwork accurately reflects the agreement you've reached, and that the execution of the agreement will not result in any unintended tax or other consequences.