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A mistake Californians might be making in divorce negotiations

California divorcees may be amongst those who might regret not claiming retirement benefits from their exes. A Securian Financial Group survey of more than 500 divorced individuals discovered that 31 percent did not know that asking for a spouse's retirement assets in a divorce agreement was possible, but they wished that they had. California views all assets obtained during a marriage, with a few exceptions, community property and mandates that couples each receive an equal settlement.

Courts and state agencies can issue what is called a Qualified Domestic Relations Order to award part of someone's retirement funds to his or her ex. Not only does this allow money to be transferred, it also avoids taxes. Experts say not to give up retirement assets in favor of alimony because alimony payments are taxed. Equally important is to not fight for the marital home in lieu of retirement benefits because property values are uncertain and homes cost money to maintain.

If someone needs money to pay for legal fees or other expenses during the divorce, the individual can take money from the ex's 401(k) or 403(b) plan. Anyone aged 59.5 or younger can take advantage of a one-time, tax-free withdrawal. However, it is typically best to roll over as much money as possible from an ex's account to one's own one retirement plan instead of cashing out. An individual could also consider asking for a share of the former spouse's Social Security benefits.

Although state law expects individuals to walk away from a divorce with equally valued assets, people still need to be smart about what they ask for because of the long-term value of certain assets over others. An attorney could assist clients figure out which assets to seek and then represent them during negotiations.

Source: Forbes, "The Big Money Mistake Divorcing Women Make", Kerry Hannon, July 03, 2014

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