For many Americans, retirement accounts — such as a pension, IRA or 401k — make up a significant portion of their assets and are vital to maintaining their standard of living in later years. If you are married, however, your retirement accounts are not necessarily yours alone. They may be considered as part of the assets to be divided in a divorce.

Arizona is a community property state, which means that all assets and debts that the couple acquires during their marriage are considered to be owned equally by each spouse. Consequently, your spouse may have a legal right to half the retirement benefits you earned during the marriage up until the date you separate.

Before a court can make a decision regarding the division of retirement funds, the accounts must be valued as of the date of marriage and as of the date of separation. The relative appreciated values of each spouse’s retirement accounts will be compared. If one spouse’s retirement assets are worth significantly more than the other spouse’s, a certain amount of these assets may be transferred from one spouse to the other. A transfer also may be required if one of the spouses has no retirement account.

An important aspect of retirement accounts is that they are usually tax-deferred. For instance, earnings in a 401k are not subject to federal income tax until withdrawals are made after retirement. If withdrawals are made before retirement age, the funds are immediately subject to federal income tax and the owner is charged a 10 percent penalty.

Because of the tax consequences of withdrawal, a special order may be needed, known as a qualified domestic relations order (QDRO). This order will allow a transfer in ownership of retirement funds from one spouse to the other without tax liability being triggered. The QDRO can also specify who will be responsible for income taxes and penalties if one spouse plans to liquidate the retirement funds at the time of divorce, prior to retirement age.

Some retirement accounts can be difficult to value, which can complicate their division as marital assets. An Arizona attorney skilled in protecting retirement accounts during divorce can be indispensable to achieving a fair property settlement.

The lawyers at Clark & Schloss Family Law, P.C. are experienced in helping Arizona residents navigate the divorce process and obtain the best possible outcomes in their cases. To schedule a consultation at our Scottsdale office, call 602-789-3497 or contact us online.