Family law attorney Scott Levin and Certified Divorce Financial Analyst Laurie Itkin explain how 401(k)s and similar retirement accounts are split in California divorces. Contributions and growth during marriage are community property, but anything before marriage or after separation stays separate. Itkin outlines two methods: a quick estimate for mediation or a forensic accounting approach that examines every statement for precision.
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Hi everybody, this is Scott Levin. I am a family law attorney who practices exclusively in mediation by choice here in Southern California. I go by the moniker Chief Peacekeeper, and I am joined by my good friend Lori Itkin. Hi Lori, how are you?
Hey Scott, I'm doing great, thank you.
Good. Lori, do you mind giving us a brief introduction for our viewers and give them some understanding of your, your background and expertise?
Sure. So I'm a Certified Divorce Financial Analyst. It's also known as a CDFA. And we CDFAs have specialized training and education and continuing education every year on the financial and tax impacts of divorce. And hey, when you're getting a divorce, Most of it's about the money, isn't it? So I practice for my CDFA work. I practice mostly with California. I've worked on over 140 divorce cases in California already and just pretty busy. My plate's always full. And I'm a wealth manager, a financial advisor for clients. And I also do that nationwide.
Wonderful. And Lori has the best and most incredible reputation. Literally, I have friends telling me, you need to, you need to know Lori Itkin. I know Lori Itkin. Of course I know Lori already. But just as—
I know you too now, Scott. So that's great.
Yeah, thank you. So Lori, a big issue in divorce is our retirement plans, defined contribution plans. So those include 401s, 403s. A whole slew of plans, and people want to understand during a divorce, how, how do we value that asset? What is— how do you look at a 401? What portion of a 401 is the separate property of the person who earned it? And what portion is the community property, especially when I get this all the time in mediation. Hey, I had this 401 prior to marriage. Isn't it just mine? Well, you had it prior to marriage, but there was also a period of time that you earned and added to that 401 during the marriage. And then of course there's been a period of time since the date of separation, which we won't get into, but that—
We'll get into it.
Okay, good. Okay, so we'll get— so that after the date of separation that a couple identifies then it goes back to earning a portion of that 401 as separate. So, you know, as a certified divorce financial analyst, how do you help people understand what they're entitled to and what the real figures are in circumstances like that?
Right. Well, thank you. Yeah, it's a great issue. And when we talk about 401, it may also be a TSP or a 403. It's not gonna be a pension. It's gonna be what's called a defined contribution plan where you pull your statement and you go, ah, I have $247,000 as of December of 2019. Okay. So, yes. So there's a lot of misconceptions over this. And it's also, remember California, we have a lot of unique rules. ways to deal with divorce math in California. I like to say divorce math is not like regular math. So, so let's take the normal situation. I like to put things in context. Okay, you have wife who's the primary breadwinner. She makes more than the husband. She has a 401 that's worth $300,000. And let's say he has an IRA. You know what, I'm not going to complicate it. Let's just focus on her. She's got a retirement plan too, but she's They've been married 10 years. The 401 is $300,000. Now, if you do nothing, the default is going to be you split that thing 50/50. Okay. That, you know, assuming it's all community property. It's very rarely all community property, except if you've had a very long marriage. But more and more, we're seeing people getting divorced. This is their second marriage, or they married later in life. So let's say her, her 401 is worth $300,000. Now let's say, and she hopes she has this, we would need to see the balance of her 401 around the date of marriage. Can't find it. And we got a problem, right? But I help solve problems. There's ways to do estimates, especially if the couple is in mediation. I cannot stress this enough because in mediation We can look at estimates. We can be reasonable people, right? So let's just say we think she had $100,000 10 years ago when they got married. Now, the growth of her separate property of that $100,000 is also her separate property, but any contributions she made plus any company match that was made during the marriage is community property. including the growth on that community property. And then as you said, we have couples that have been separated for a long time, 6 months, 3 years. I mean, I even have— I'm even working with a couple that's been separated 8 years.
Wow.
Okay, and so as you implied, any contributions and company match and growth on that after the date of separation is your separate property. And this is why couples often argue, well, what is the date of separation? Well, she moved out. Yeah, when we got back together— oh, we haven't slept together in 3 years. You know, I hear it all, you hear it all. The date of separation, we could do another video on that.
But anyway, so you're saying that there is a way When someone has $100,000 in their 401 before the marriage, that there's a way to value what that $100,000 grew to, to separate that growth out as a separate, as a separate portion?
Yes, there is. Now the big question is, how much does the couple want to pay to get that answer? Okay. Pay, meaning the time for someone like me, another CDFA, or forensic accountant. We can do the old school route, which is the accurate route, and ask to see every monthly statement or maybe every quarterly statement. All those 10 years of marriage plus— okay. Sometimes it's hard to get those records. 50% of the cases, at least, you can't even get all those records because it's so long ago. So What we can do is sometimes though people say, well, I had this, or, you know, we can— then the couple, I can say to the couple, can I estimate? Can I look at maybe how your 401 is allocated now? Maybe it was allocated then. And I can figure out pretty quickly, is this person— if this person was a passive investor and it was just in a target date fund and they never changed it, very easy to do. If this is a person who was day trading in their 401, moving, I can— there, it won't be great. So what I love to do in my memos is do a range of estimates. If we assume X, Y, Z, and I believe these are reasonable assumptions, it could be X, Y, Z. You're really fighting over $40,000. I mean, are you fighting over $40,000? Are you fighting over $400,000? That is the beauty of this in mediation. Now, if you are going to fall out of mediation and you really want to get to the dollar on this 401, then you are going to have to go the forensic accounting route. Because if you cannot prove your separate property, it is presumed to be community property divided 50/50.
You know, that's really— I'm really glad you mentioned your reports because I've read your reports before, obviously. And not only are they super easily, you know, the way that you write, even I can understand, my clients can understand, you know, and we're dealing with people from all walks of life. So it's the time that you put in is pretty amazing to simplify. But I also love what you do when you, you'll give like the 2 ranges or the 3 ranges or whatever.
Sure.
And you'll, you'll lay out your case for why, you know, why this is reasonable. And then you'll say, if we choose the median, you know, it would be, you know, the community property of interest would be X. And I always love that because it gets people in mediation, you know, motivated, you know, for the middle, which is, you know, the fair, the fair and even way to go. So I really love— I just want to comment, I love how you write those and how you do that.
Thank you. I mean, you want to know, what am I leaving on the table? What am I giving up? And if I can make that number of uncertainties small enough, I feel I've really delivered a great job and such a helpful role to the couple and the mediator. But there will be cases where I can't do it. I, you know, and I try to use different methodologies to get into my estimate. I mean, I have a backtest portfolio analyzer, which is a fancy way of saying if you were in the S&P 500 70% that and 30% in bonds, how would it have performed over time? Or I'd use that, and I also will do— I'll take whatever statements you have and I'll build a spreadsheet and make linear estimates. And so there's different ways to get at it. But now this is where the price can range. So if people want quick and dirty from me, maybe I can do it in 2 hours again. So on these things, I've ranged anywhere from 2 to 10 hours depending on How many statements we're looking at.
Well, it's well worth it, I will say. I mean, people want— you want to understand what, you know, like you said, what you're leaving on the table, what the numbers really look like within reason, and so that you can make an educated decision when you're deciding whether, you know, to give something up or to take your percentage or to make a trade-off. It's just really important. And, you know, one thing that people don't understand is that these, you know, equations and math and finance are not taught typically in law school. You know, I don't remember those classes.
No.
So, you know, there's a lot of lawyers are just missing that whole side of things. And that's why bringing in a certified divorce financial analyst, a CDFA like Lori Itkin, is just a really, really smart thing to do for not in, in the scope of things, not a whole lot of money. Um, so do yourself a favor. Uh, Lori, where can people find you?
The best way to find me is my website, which is theoptionslady.com. theoptionslady.com.
Great. Well, thank you so much. Um, and we really appreciate you joining us and give— I mean, she is really a very in-demand person, everybody. So I'm really blessed to have you here today, and I look forward to continuing to work with you and watching you continue to succeed. So thank you.
