The CARES Act Impact on Retirement and Divorce

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. In addition to providing funding for businesses, expanded unemployment benefits, and more, the CARES Act relaxed penalties for early retirement withdrawals. If you are considering divorce or are dividing a 401(k) retirement account in your divorce, the CARES Act is important to consider as part of your divorce planning. 
The CARES Act makes it easier to borrow money from 401(k) accounts for people of any age, by raising the borrowing limit to $100,000, and waiving the early withdrawal penalty of 10% of the withdrawal amount for those under 59 1/2. 401(k) participants can also avoid taxes on the withdrawal by paying back the amount borrowed to the retirement account within three years. If the money cannot be returned, taxes can be paid over three years. Further, payment dates for any loans due for the rest of 2020 are extended for a year. However, these new rules will not last forever.
In California, retirement accounts are considered community property, even if only one spouse, the participant spouse, contributed. Usually, when 401(k) plans are divided in a divorce, the non-participant spouse rolls over their share into a new or existing Individual Retirement Account (IRA), while the participant spouse’s share remains in their original 401(k). However, with many of the restrictions removed following the CARES Act, 401(k) participants may be able to access their 401 (k) now to create a better divorce settlement. For those contemplating divorce, it may make economic sense to move forward now and take advantage of the Act because it may give attorneys, working with a Certified Public Accountant (CPA) or tax attorney, the ability to create a financial settlement that is more advantageous to both parties.
Please note, this article is not specific tax advice for your situation.  Whether you are going through a divorce or not, you should not use any of the information in this article for your tax planning without consulting with a CPA or tax attorney.
For more information on family law matters contact The Reape-Rickett Law Firm at 661-288-1000.