Retirement Accounts During a Texas Divorce
Going through a divorce can be an enormously difficult and stressful time. On top of the emotional turbulence, there are critical financial decisions to be made that will impact your future. One major asset that requires attention is retirement accounts.
If you are experiencing a divorce or need support with family law issues, don’t hesitate to contact our family law attorneys at Bastine Law Group at 281-784-3222.
How Texas Courts Handle Retirement Assets in Divorce
Texas is a community property state, which means that most assets and debts acquired during the marriage are considered marital property that is divided equally in a divorce. This includes workplace retirement plans like 401(k)s and pensions. The court will tally the total value of all retirement assets and split them 50/50 between spouses.
There are a few exceptions. For example, any retirement funds that one spouse earned before the marriage or received as a gift or inheritance during the marriage are considered separate property belonging solely to that individual.
Valuing Retirement Accounts During Divorce Proceedings
Determining the overall value of retirement plans during divorce can be tricky. The court looks at the current account balance but also takes into account future earnings potential. After all, the purpose of a retirement account is to provide income in the future when you are no longer working.
Figuring out that future value requires hiring a financial professional to provide analysis and calculations. They will consider factors like expected investment growth rates and life expectancy to project out anticipated retirement account balances.
Getting accurate valuations is crucial because it directly impacts how assets get divided. Undervaluing retirement funds would cheat one spouse out of their rightful share. This is why it’s important to consult a divorce lawyer in Texas before you undergo divorce.
The Basic Process for Dividing Retirement Accounts in Divorce
Judges have several options when allocating retirement assets between divorcing spouses:
1. QDRO: Allow Ongoing Shared Ownership
The most common approach is executing a qualified domestic relations order (QDRO). This legally assigns a portion of one spouse’s retirement account to the other spouse.
For example, if a husband has a pension plan worth $500,000, the wife would be granted ownership of $250,000 through a QDRO while the husband keeps the remaining $250,000. They each get 50% as tenants in common. However, to ensure you get the best amount, consider speaking with a Texas divorce attorney.
A QDRO allows both spouses to keep actively participating in the retirement plan. No assets have to get shifted around or withdrawn. The wife can leave her share untouched until the husband ultimately retires and starts taking distributions, which they would split based on the QDRO terms.
2. Asset Buyout: Shift Funds to Spouse Immediately
Alternatively, judges may order an asset buyout where retirement funds get immediately transferred to the other spouse. This severs any joint ownership in the retirement account.
The buyout typically happens by shifting an equivalent dollar amount from other marital assets into the non-owning spouse’s retirement fund or bank account. For example, the husband’s 401(k) would remain 100% his, but the wife would receive a $250,000 payout from the sale of their house.
Buyouts give both spouses full control over their own retirement savings right away instead of waiting until the account owner retires. However, it usually requires liquidating other assets like the house which may not be ideal.
3. Hybrid Approach
Courts can also implement a combination of QDRO shared ownership with some funds being immediately transferred through an asset buyout. The goal is to achieve a balanced division based on the couple's total assets and personal situation.
How Different Accounts Get Divided in Texas Divorces
The exact process for splitting retirement plans depends partially on what type of account it is. A Texas divorce attorney can help you with this process. Here’s a brief overview:
401(k) Plans
401(k)s are one of the most common types of employer-sponsored retirement accounts. They get divided either through QDROs that grant shared ownership or by shifting an equivalent dollar amount into the other spouse's IRA.
IRAs
Splitting IRAs works similarly to 401(k)s. The court can allow ongoing shared ownership through beneficiaries and restrictions or order funds transferred into the non-owning spouse's own newly created IRA.
Pensions
Pensions often get split through QDROs because they provide fixed income in retirement. One spouse gets granted shared ownership in the payments so they effectively get split when distributions occur.
Federal Government Plans
Dividing some federal retirement accounts like Thrift Savings Plans (TSPs) involves executing s QDRO-like court orders rather than standard QDRO forms. But TSP splits still involve shared ownership between divorcing spouses.
Military Retirement Pay
In Texas, military pensions are considered community property up to 50%. A QDRO-like order grants the non-military spouse a portion of retirement pay when it starts. This is distinct from disability pay which is separate property.
Frequently Asked Questions
1. How much of my retirement savings will go to my spouse?
In Texas, retirement accounts are generally considered community property that gets divided 50/50 in divorce. So if you have a 401(k) worth $250,000, your spouse would likely get awarded $125,000 of those funds. The exact details depend on the plan type, balance fluctuations, and other assets.
2. What if my retirement account has grown substantially since getting married?
Growth of a retirement fund during the marriage is still usually considered community property. However, you may be able to negotiate an unequal split in your favor if you can show proof of significant contributions or growth derived from your separate property deposited before or during the marriage.
3. Can I refuse to divide my pension?
No, you cannot refuse to divide retirement accounts in a Texas divorce. The court will make the final determination on asset allocation. Refusing to cooperate can negatively impact negotiations and result in an unfavorable ruling.
4. How long does it take to divide retirement accounts in divorce?
Executing all the necessary legal paperwork and fund transfers for retirement asset division usually takes around 90 to 120 days. However, for pensions and some other accounts, division is only initiated during divorce and not finalized until retirement payouts begin years or decades later under the parameters set in divorce agreements.
5. Who decides how retirement funds get divided?
Ultimately the presiding judge makes final decisions if you cannot agree how to split retirement savings through divorce mediation or negotiations. But in many cases, spouses can mutually determine the division details when working with attorneys who help advocate their respective financial interests.
How an Experienced Divorce Attorney Can Help
Trying to navigate retirement asset division on your own is extremely difficult, especially when emotions run high. An experienced divorce attorney with experience in financial aspects of divorce is invaluable.
We help clients protect their retirement funds while achieving fair outcomes. We handle valuations, negotiate on your behalf, and ensure the final orders use appropriate distribution methods for your situation.
Whether executing QDROs, buyouts, or hybrid splits, our Texas divorce attorneys help reduce stress so you can plan your financial future wisely. If you need support and want to connect about divorce, please contact our team of experienced attorneys at Bastine Law Group at 281-784-3222.