Dividing assets adds another layer of complexity to the already difficult divorce process. However, when you’re dealing with retirement accounts, the complexities may seem to multiply tenfold.
Differentiating community and separate property
Texas law considers all property or assets you acquired during the marriage as jointly owned or community property unless proven otherwise. This includes individual contributions to pension plans and any retirement accounts you or your spouse opened after your marriage date.
Dividing community property in Texas
Aside from being a community property state, Texas is also an equitable division state. The court doesn’t divide your assets right down the middle and give you a 50/50 share. Instead, courts split your property and assets equitably or fairly based on factors such as:
- Length of the marriage
- Needs of your children
- Your job and earning capacity
Types of retirement accounts
Since retirement accounts fall under the community property category, you can also expect a fair division of these assets. There are two main types of retirement accounts:
- Defined contribution plans: These include 401(k)s and individual retirement accounts (IRAs). Courts divide these based on the contributions made during the marriage.
- Defined benefit plans: Examples of these are pensions. These are divided based on the benefits accrued during the marriage.
Get a QDRO for your 401(k)s
You need to get a Qualified Domestic Relations Order (QDRO) to divide any employer-sponsored retirement plans like 401(k)s and pensions. A QDRO is a court-ordered document that instructs the plan administrator how to divide the account. Distributions made under a QDRO are exempt from early withdrawal penalties. However, you still have to pay taxes.
Request a transfer incident for your IRA
Dividing an IRA is simpler than dividing a 401(k). You don’t need to obtain a QDRO. Instead, you will need a transfer incident to divorce specifying how to divide your IRA. If done correctly, you can avoid taxes and early withdrawal penalties using direct transfer incidents.
Ensure a fair and rightful division of benefits
The specific circumstances of your divorce, including any prenuptial agreements, can significantly impact how the court divides your retirement assets. It’s always a prudent idea to consult a divorce or family law attorney to ensure you’re making the best decisions for your situation and will receive your fair share of benefits.