When a California couple gets a divorce, they may have to divide assets such as retirement accounts. While taking distributions from a retirement account before reaching a certain age usually results in taxes and penalties, a divorce is considered an exception. However, it is still necessary to complete the proper paperwork.

Taxes and penalties on a 401(k) or pension plan can be avoided with a document called a qualified domestic relations order. This must be prepared by a professional, and the plan’s administrator must review and approve it. Furthermore, the couple should look over the document to make sure it reflects their wishes and includes information on whether the distribution will be rolled into an IRA or directly distributed. In an IRA rollover, the recipient does not have to pay either taxes or penalties. With a direct distribution, the spouse will need to pay regular income tax but no penalty.

An IRA does not require a QDRO. However, the distribution still must be rolled over into another IRA. The financial institution will have certain paperwork requirements as well.

In some cases, account holders will want to change the beneficiaries on their retirement plans. If so, a spouse must give permission to be removed as a beneficiary. However, the spouse should wait until the divorce is finalized to be removed. Otherwise, if the account owner dies, the spouse receives nothing.

In a community property state like California, the spouse would ordinarily be entitled to half of the retirement account. If the other person brought the retirement account into the marriage, the spouse would probably be entitled to half of the appreciation amount since the marriage began. Most other property acquired since the marriage would also be split equally. With legal assistance, however, the couple may be able to negotiate a customized solution.