How to protect your finances during divorce

The emotional difficulties associated with a divorce are fairly well known. If you have a family member or friend who has been through a divorce it’s likely that he or she has spoken to you about just how taxing the process can be. When you are working through something where the end result is you losing your life partner there is no doubt that you will be a changed person at the end of your journey.

While the emotional components of divorce are well known, what is not discussed with as much frequency is the relationship between the emotional difficulties of divorce and the effect that is had on your finances.

When you feel vulnerable, hurt, uncertain or just plain sad you may seek solace in spending money and buying things. In the alternative, your divorce may leave you feeling so numb that you lose interest in keeping up with your finances. The rest of your life is in tatters- the thought may cross your mind- so why should I even bother trying to reduce debt or at least hold things together during the divorce?

The fact remains that it is crucially important that you focus on your financial life rather than only on your emotional well being during a divorce. There are steps that you can take to protect yourself from a financial perspective both before your divorce and during the divorce process itself. We would like to share some of those steps with you in order so that you can minimize the chances of mistakes being made in conjunction with those finances. While most mistakes can be fixed with time, a financial mistake often takes time and dollars to undo.

A Focus on Retirement Plan Assets

Once your divorce has begun the biggest asset of your case, and one of the more complicated aspects of your case will center around your and your spouse’s retirement plans.

These benefits do not automatically get split in a divorce but the portions of them that are part of the community estate will be subject to division in a just and right manner. Keep in mind that your spouse and you will have the opportunity to negotiate a settlement on all issues your case- including the division of retirement benefits. If an agreement is not able to be reached, then the judge in your case would intercede and render a decision.

Figure out where you and your spouse stand early in the divorce

If possible, before your divorce begins work to accumulate as much documentation and information as possible regarding your and your spouse’s retirement plans. Your former employers and current employers should be contacted so that you are able to collect information on any retirement plans that you had previously contributed to that you may no longer access.

For example, in your first job out of college, you may have had an employer-sponsored 401(k) that you contributed to for the six months when you worked at that company but have not contributed to it since. If you have not rolled that plan into an Individual Retirement Account (IRA) it may just be collecting dust. If this retirement fund, no matter how large or small, was contributed to during your marriage then it is important that you do as much as you can to collect information about it. Provide that information to your attorney so that all retirement assets are known prior to the beginning of negotiations.

The same goes for your spouse. Obviously, you will not have the same access to his or her information as you do to your own so if you are able to request the information during your marriage (before the divorce has been initiated) that would be for the best. It’s likely that you are listed as a beneficiary on any retirement plan your spouse has and therefore you would be able to access this information. An informed spouse is better positioned to negotiate and receive what is fair in a settlement, as opposed to a spouse who is not exactly sure what is out there are far as divisible assets.

What are the types of retirement plans that exist?

While it doesn’t take an advanced degree in finance to understand and appreciate the importance of retirement savings, the specifics of each sort of retirement vehicle can get confusing. For starters, employer-provided plans like pensions, 401(k)s, 403(b) and military retirement packages are common enough that if your spouse works for the government or a larger company it’s likely he or she has at least one of these sort of accounts.

A private mechanism that is used for retirement savings purposes is the Individual Retirement Account (IRA). As the name implies, this is a retirement vehicle that is in only the name of your spouse and may have been opened as a result of he or she needs to “roll” an old workplace retirement account into a new account after he or she left the job that the 401(k) came from. IRAs are also a good place to invest if you earn enough money where the $18,000 annual contribution to your 401(k) leaves you with additional sums of money that you would like to invest.

The key point to understand is that it is far easier, less expensive and all around smarter to collect all of this information before you even speak to a family law attorney about filing for divorce. If you learn about a retirement plan after your divorce is finalized it is almost impossible to get the case opened up in order to divide up the new found retirement account.

The Qualified Domestic Relations Order

Retirement assets that were acquired during the course of your marriage are considered to be community property in Texas. This means that these benefits are subject to being divided between you and your spouse. This is important as you have likely worked and contributed a great deal of money into retirement assuming that the effort would be worth your while. In the blink of an eye, those savings could be gone and utilized instead by a spouse who has filed for divorce against you.

In order to ensure that the retirement savings that you get from your spouse (if any) are made available to you, a Qualified Domestic Relations Order (QDRO) will need to be signed off on by the judge in your case prior to the divorce’s finalization. Waiting until your spouse retires to request your portion of the retirement plan is not a smart move.

The QDRO sets forth your right under the law and under your divorce decree to receive a portion of your ex-spouse’s retirement assets. Your attorney will draft the QDRO and it will be based upon whatever the plan administrator for your spouse’s retirement plan requires the QDRO to say.

Once the QDRO is drafted it will be submitted to the judge in your case for his or her signature prior to being sent off to the retirement plan administrator. Each retirement plan has different language that will need to be included in the QDRO so your attorney should verify with the plan administrator beforehand what needs to be included.

Questions to prior to filing for divorce as well as help with credit accounts- more financial help to be posted tomorrow

If you are interested in learning more about finances and divorce then come on back tomorrow to our blog to continue this discussion. We will talk more about how to protect yourself from financial mistakes in your divorce as well as briefly discuss credit accounts and their potential impact on your case.

In the meantime, if you have questions about any topic in the field of family law please do not hesitate to contact The Law Office of Bryan Fagan. We offer free consultations six days a week with a licensed family law attorney. We would be honored to speak to you about how we can help you and your family manage the tough issues surrounding a family law case.

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Law Office of Bryan Fagan | Houston, Texas Divorce Lawyers

The Law Office of Bryan Fagan routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.

Our divorce lawyers in Houston TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan handles Divorce cases in Houston, Texas, Cypress, Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.

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