On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law in an effort to free up funds for individuals and ease the economic impact of the COVID-19 pandemic. The CARES Act not only provides direct payments to Americans, but also creates special rules for retirement plan participants.
The CARES Act permits individuals to take a coronavirus related distribution (“CRD”) from their eligible retirement plan and avoid certain consequences, such as the IRS’s 10% early withdrawal penalty. In order for the distribution to meet the CRD criteria, you, your spouse, or dependent must be diagnosed with the virus SARS-CoV-2 or with COVID-19, or you must have experienced one of the following:
The CARES Act allows participants of certain retirement accounts (IRA, 401(k), etc.) to receive a CRD of up to 100% of their vested retirement plan balances. Previously, the limit was set at 50%. Also, the maximum withdrawal amount from employer plans, without being penalized, has been increased from $50,000 to $100,000 under the CARES Act.
Regarding repayment of the amount withdrawn, the CARES Act provides that any individual receiving a CRD has three (3) years to pay back the amount withdrawn in order to avoid certain income tax implications. The CARES Act further provides that the amount withdrawn shall be included as gross income on the individual’s income tax return ratably over a three (3) year period.
Specifically regarding loans from qualified plans, the amount permitted has also been increased from $50,000 to $100,000, and have been capped at 100% of the vested account balance, which is an increase from the previous 50% cap. The due date for the repayment of the loan shall also be delayed for one (1) year.
If you are in the midst of a divorce proceeding or are thinking about initiating one, you and/or your spouse’s retirement plan withdrawal or loan in accordance with the CARES Act may have lasting implications.
California is a community property state, which means that all assets of the marriage, including retirement plans, must be divided in half. Meaning, a non-participant spouse may be entitled to one-half (1/2) of the value of participant-spouse’s retirement plan that accumulated during the marriage.
Some questions arising from the CARES Act with respect to the division of assets in a community property state may include the following:
If you are experiencing adverse financial consequences due to COVID-19 and are questioning whether you can and/or should withdraw from your retirement plan, how such withdrawal may impact a dissolution of marriage action, or have specific questions regarding the tax implications of withdrawing from your retirement plan, we urge you to contact the attorneys at Cage & Miles, LLP prior to making any decisions.
 https://www.npr.org/2020/03/25/818881845/senate-reaches-historic-deal-on-2t-coronavirus-economic-rescue-package; https://www.congress.gov/bill/116th-congress/senate-bill/3548/text.
 See Sen. Bill No. 3548 (2020 2d Sess.) §2103 et seq.
 Note that the diagnosis must come from a test approved by the Centers for Disease Control and Prevention. Id. at §2103(a)(4)(A)(ii)(I).
 Id. at §2103(a)(4)(A)(ii).
 Id. at § 2103(b) et seq.