Splitting retirement accounts in a Texas Divorce

If you’re considering a divorce from your spouse or have just begun the process then the end of your divorce may seem like a distant dream. While it’s true that a divorce doesn’t finish overnight it is by the same token untrue that your divorce will be never-ending.

Eventually, whether it is by a judgment from a court or a mediated settlement agreement, your divorce will come to a close. Part of closing your divorce case is figuring out what will be done with any retirement accounts that you or your spouse own. The Law Office of Bryan Fagan, PLLC would like to share with you some information about this subject that may be one of the most important subjects of your divorce.

Community Property and its effect on Retirement benefits

If you or your spouse’s employer sponsors a retirement plan it may become subject to property division in your divorce. As a community property state, Texas draws a distinction between property that is acquired during the course of your marriage (community property) and property acquired by either spouse before your marriage (separate property). Any part of your retirement savings that was accumulated during your marriage is subject to being divided up with other portions of the community estate of your marriage.

The division does not have to be right down the middle (50/50) though it can be. Often times you and your spouse will arrive at a settlement yourselves where you both set the percentage division. Likewise, a judge can do the same and divide a retirement plan according to a breakdown that he or she believes to be just and equitable.

The Employee Retirement Income Security Act (ERISA)

Most retirement plans for private employers in our country are governed by The Employee Retirement Income Security Act (ERISA). It is built into this law that retirement plans are able to be divided up by court order at the conclusion of a divorce suit.

However, it is not enough to simply mail a copy of your Final Decree of Divorce to the person or entity that manages the retirement plan to be divided up. A Qualified Domestic Relations Order or QDRO for short but be sent to the plan administrator who will review the court order to make sure it complies with the rules of whatever retirement plan is in play. A judge will sign off on the QDRO before it goes to the plan administrator.

Once the plan administrator approves order it becomes “qualified”. If the plan administrator does not believe that the QDRO complies with the plan rules it cannot be used to complete whatever property division is contained in the final decree.

When the QDRO should actually be drafted and submitted to the judge for their signature

I have seen some attorneys want to wait until a final decree of divorce has been signed off on by the judge in order to begin working on the QDRO. The rationale that has been given to me is that it does not make sense to draft a document until you know what it has to contain. You will only know what it has to contain when a court has signed off on the terms of either the settlement or the rendering of a judge made order.

I disagree with this plan of action for a few reasons. For starters, once you get to the point where a judge is able to sign off on a divorce decree you do not want to waste any time in completing the process altogether. From an attorney’s perspective, going to court and finalizing a divorce is one of the most satisfying parts of the job of a family law attorney. From your perspective as a client, a done divorce means that the rest of your life is in front of you.

Getting a judge’s signature on a divorce decree but still having to hammer out a QDRO, wait for a judge to sign the order and then wait even more time to get the order qualified by a retirement plan administrator is frustrating for all parties involved. That’s a best-case scenario where the judge signs the document quickly and then the plan administrator has no issues with the order.

If the order has to be re-drafted the entire process begins anew. It is best to strike while the iron is hot- your attorney (or your spouse’s attorney) should draft the QDRO at the same time as the final decree of divorce.

That way everyone involved is feeling good about the status of the case and is willing to put forth the effort to finish everything off. Delaying the process is what typically happens even in the best scenario when the QDRO isn’t drafted quickly after mediation or trial.

Finally, if either you or your spouse have an issue with the language being used in the QDRO it should be discussed along with the remainder of the marital property division. Both sides want the QDRO to be completed and used to divide the retirement account without error or wasted time. With thousands (or more) of dollars at stake, it is best to allow yourself an opportunity to debate with your soon to be ex-spouse on what language is utilized in the QDRO.

A judge is always available to play tiebreaker if there is an issue and the divorce has not yet been finalized. However, if you all wait until after the final decree has been signed to go and speak to the judge it is unlikely that he or she will be willing or able to intercede and resolve any conflicts.

Consider the QDRO early in the divorce process

As I stated in the opening to this blog post, although the QDRO comes into play more at the end of your divorce than in the beginning, it still pays to consider its importance at the outset of your divorce. Each divorce is different, including your own.

For many of us, our retirement plans are a huge part of our net worth and our estates. Following a streamlined approach towards the drafting, debating and finalizing of a QDRO can go a long way towards achieving a relatively pain-free divorce.

In order to best ensure that your divorce and any division of martial assets is completed in a timely and efficient manner whereby your rights are protected it is best to work with a licensed family law attorney. The Law Office of Bryan Fagan, PLLC works with clients on a frequent basis for whom retirement plans are split in their divorce. For a free of charge consultation please do not hesitate to contact our office to discuss this subject or any other in the field of family law.

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Other Articles you may be interested in:

  1. Proceeding into Divorce aware of risks regarding retirement division, Part Two
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  3. Individual Retirement Accounts (IRAs) and your Divorce: Taxes and General Information
  4. Social Security division in a Divorce
  5. Will Social Security Benefits play a substantial role in my Texas Divorce?
  6. Is Social Security Considered Separate Property in a Texas Divorce
  7. Key Elements of a Divorce for persons over the age of 50
  8. 7 Tips for Divorcing After Age 50 in Texas
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  10. Texas Divorce and Retirement & Employment Benefits by the Numbers
  11. Is Social Security Considered Separate Property in a Texas Divorce?
  12. Will My Spouse Get Part of My Retirement in Our Texas Divorce?
  13. Husband Loves His Wife and Wants a Divorce in Texas “On Paper” for Strategic Financial Reasons?
  14. Dividing a Pension in your divorce

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