One of the most complex aspects of divorce involves dividing the assets you acquired during the marriage. In Texas, retirement assets are community property, which means the courts divide them between you and your spouse.
Understanding how this retirement division works can help you navigate the process effectively.
Retirement assets calculated
First, you and your spouse should identify and list your retirement assets, including your 401(k) plans, IRAs, pensions and any other accounts or benefits related to retirement. Calculate these accounts’ current values. More complicated accounts, such as pensions, may require professional valuations.
Community property and equitable division
In Texas, a community property state, most assets acquired during the marriage are joint property, regardless of who earned or contributed to them. Assets owned before the marriage or received as gifts or inheritances during the marriage are typically separate property.
Retirement assets require equitable distribution, so the courts typically split them 50/50. However, judges account for several factors, including the length of the marriage, your and your spouse’s financial situation and both your contributions to your retirement accounts.
Qualified domestic relations order
Did you know that private companies provide more than 60 million employees with pensions or retirement plans? However, to divide retirement assets, a court typically issues a QDRO, which outlines the retirement asset division. Once approved, the QDRO goes to a plan administrator who implements the division.
Different types of retirement accounts may have varying tax consequences, so consult with a tax professional.
After the divorce, update your beneficiary designations and other relevant paperwork to reflect the new ownership of your retirement assets to avoid complications down the road.
Learn about the legal retirement division process in Texas to ease your stress and uncertainty and learn how you can protect your retirement.