How Are Retirement Accounts Divided in a Texas Divorce?

Retirement accounts and benefits that typically need to be divided in the divorce include 401(k) accounts, deferred compensation accounts, pensions, IRAs, and any other type of retirement savings plans that either of the couple might have.

The first step in a divorce is properly calculating all assets, and this means finding and adding to the asset list all these retirement accounts. Be sure to talk with a lawyer about making sure this is done right. A lawyer can make sure nothing of your own is missed and can also help you if you suspect your spouse is trying to hide assets from division.

The key to dividing any asset in the divorce is classifying that asset as either separate or community property. Separate property belongs only to one person and is not divided. Separate property is anything that either spouse owned prior to the marriage or which was gifted or inherited to them alone during the marriage. All other property is considered community property, and any separate property which was mingled with community property at any point becomes community property. This rule about mingling assets is what frequently turns even an originally separate retirement account into a community property account.

One of the tricky situations we sometimes face with retirement accounts is dealing with an account that it was established before the marriage. Contributions that were made prior to the marriage are the separate property of the spouse who made them, but all contributions made during the marriage become community property even if only one spouse was making those contributions. If a retirement account was established during the marriage, then all of it is considered community property. If a retirement account was established prior to the marriage and the contributions were made to it after the marriage began, then it could potentially be entirely separate property.

Another question is what type of account you’re dealing with and how long the spouses have been married. Most of the standard retirement saving plans like IRAs and 401(k)s are always going to be divided, and it doesn’t matter how long the spouses have been married. Other retirement benefits have different requirements. Social Security spousal benefits, for example, will only kick in for people who have been married a certain number of years. Military retirement benefits and pensions may also have unique rules that need to be dealt with. This is why it’s so important to work with an experienced attorney who knows how these assets are likely to be divided.

Finding All Assets

 

Texas divides assets into what is considered “equitable.” This means that whatever is in the account will be calculated as part of the larger split in an attempt to make sure that both spouses come out of the divorce on equal footing. If the marriage was fairly short and the spouses have similar incomes and income potential (which is the amount of income a person could be theoretically bringing in) then the split may indeed be close to 50-50. But in many marriages, particularly longer ones, one spouse has sacrificed to support the other spouse’s career. This might be one spouse staying home entirely as a homemaker or could involve one spouse working minimum wage jobs to support the other spouse as they get further education to advance their career. In this case, the courts may award more assets to the spouse who needs time to improve their income potential compared to the other spouse.

The court will also consider which spouse has child custody, if that applies in your case, and also look at the health and age of the spouses as it makes this decision. There are other factors involved, as well, and you’ll need to talk to your lawyer to understand how those factors may apply in your case.

Technically, you can attempt to take care of your divorce on your own without an attorney, but this is not advisable, and especially if there are complicated assets that need to be divided. An attorney will carefully review your situation, give you sound advice based on their knowledge of the law and the courts, and will help you in negotiations with your spouse.

An attorney can help you be certain your spouse is not hiding assets and will fight for your rights in negotiations, settlements, and court hearings. Because a divorce attorney has done this many times, they know what kinds of questions to ask, where to look for hidden assets, and how to give you a proper estimate on what to expect with asset division.

It’s not unheard of for a spouse to try to cash out their retirement accounts and spend the money before divorce, just to keep that money out of the hands of their spouse. If you have any concerns about this, ask your lawyer to file a temporary restraining order with the court when you file for divorce.

It can be devastating to divide up a retirement account. Not only do you lose a portion of that hard-earned savings, but there can also be tax penalties if you’re not careful. If you want to keep your retirement account, there are a couple of options. First, if you and your spouse can come to an agreement about asset division, one of your bargaining points could be a request that you be allowed to keep that account. A second possibility is for you to buy out your spouse’s share. You might also agree to exchange other community property of equal value.

Contact us today at C.E. Schmidt & Associates, PLLC in Houston, TX to speak with a team member about your divorce.