Texas Divorce: Retirement and Employment Benefits by the Numbers

For many spouses going through divorce, retirement accounts and employment benefits are the largest and most complex community assets.Three of the most common types of retirement accounts and employment benefits are:

  • Deferred compensation plans (e.g., pension plans);
  • Defined contribution plans (e.g., 401(k)s; and
  • IRAs), and stock options.
  • Issues Affecting the Division of Retirement and Employment Benefits in Texas
  • Deferred Compensation Plans
  • Defined Contribution Plans
  • Stock Options
  • Job Specific Retirement Benefits
  • Qualified Domestic Relations Order (QDRO)
  • Deferred Compensation Plans

    Deferred compensation plans pay employees a set amount. Employees receive this when they reach normal retirement age after a specified number of service years. To calculate the benefit, get the average of the employee’s income. Then, multiply it by a ratio based on their age and service years.

    Defined Contribution Plans

    Defined contribution plans hold stocks, cash, and other assets. Employees add part of their salaries to these plans, and employers often match these contributions up to a certain limit. The value of these accounts varies daily, regardless of the employee’s age or service years.

    The return on investment (ROI) determines the total fund value. These plans are more portable than defined benefit plans since employees can transfer their contributions to a new employer’s retirement plan.

    Examples of defined contribution plans are:

    1. Profit sharing plan
    2. Stock savings plan
    3. 401K
    4. 403B
    5. Keoghs
    6. Individual Retirement Accounts (IRA)
    7. Roth IRA
    8. SEP-IRA
    9. Educational IRA
    10. Deferred compensations plan

    Stock Options

    The employer grants stock options to employees as a reward for service or additional compensation beyond salary or hourly wage. These options usually vest after a predetermined employment period.

    Job Specific Retirement Benefits

    Some professions will provide very specific retirement benefits. When going through a divorce involving property division or financial disputes, it’s important to retain an attorney that is familiar with your profession and it’s retirement benefit plans. Teachers, firefighters, police officers, and other professionals should consult an attorney with knowledge of the retirement benefits particular to their profession, including:

    1. Teacher Retirement System (TRS)
    2. Firefighter Retirement Plan
    3. Firefighter Retirement Fund
    4. Deferred Retirement Option Plan (DROP)
    5. Post Retirement Option Plan (PROP)
    6. Police Officer Retirement Plan
    7. Police Officer Retirement Fund

    The first step the attorney must take in advising you about dividing these assets is to determine what portion is community property. During discovery, the attorney requests documents and written questions from the spouse with retirement benefits. This process aims to determine the asset’s present value, its accrual time, and method. After acquiring the necessary documents and information, the attorney often consults with experts in accounting, tax, and federal ERISA law to classify the asset as separate or community property.

    Retirement and employment benefits often accumulate partly before and during the marriage. To ascertain the benefits’ marital property character, the attorney and experts must ‘trace’ the assets from acquisition until the divorce. They track changes like stock splits, new acquisitions, and sales to determine the current community property portion.

    Qualified Domestic Relations Order (QDRO)

    After identifying the marital property character of the retirement or employment benefits, the parties and their lawyers negotiate their division. If they cannot agree, they can submit the dispute to a judge for a just and right asset division.

    Once the parties reach an agreement on divorce retirement and employment benefits, the plan administrator for these benefits requires a Qualified Domestic Relations Order (QDRO). This is in addition to the final divorce decree. The QDRO, a specialized legal document, instructs how to divide the asset between the spouses. It must comply with federal law and any specific requirements of the plan administrator. It’s crucial that the family law attorney possesses the necessary knowledge to accurately characterize retirement benefits and ensure their division by the employer.

    The attorneys at the Law Office of Bryan Fagan, PLLC are experienced family lawyers with knowledge in marital property division in Texas. Contact us for assistance and representation in regards to divorce retirement and employment benefits.


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