As long as we're talking about one unpleasant subject, namely divorce, we may as well talk about another, namely death.
A good question to ask yourself is, what happens to your share of the retirement benefits awarded to you under your spouse's retirement plan if they die before your claim is paid? Do you get to receive the portion awarded to you, or does it somehow revert to your spouse's estate?
A lawyer's favorite answer to a question is: It depends. That answer is unfortunately applicable here. Look to see if your Qualified Domestic Relations Order (QDRO) provides some protection for you if your ex-spouse passes away before your benefits are fully paid or made available to you.
Sometimes your attorney can insert this language into the QDRO on their own. Other times, it will be the preferred language that the retirement plan administrator requests to be included. Either way, this type of language can save you if your ex-spouse passes away.
If the reverse should unfortunately occur, and you pass away before receiving all of the benefits awarded to you in your divorce, the same questions are relevant. Would your ex-spouse get all of those benefits that you would typically get?
Does the pension or retirement plan get the benefits instead? If you are thinking about including language in your will to pre-designate a recipient for the money if you do pass away, there is no way to do this, sadly. You and your lawyer will need to discuss this in greater detail before the conclusion of your divorce.
Delay in receiving benefits means the interest on the amount awarded to you in the divorce?
Sometimes there are issues when getting a QDRO approved by a plan administrator, and your payments are not made as timely as you would have liked. While these mistakes are typically avoidable if your attorney is proactive and drafts the QDRO according to the guidelines set forth by the administrator, there may be unforeseen issues that arise that cause you to lose time.
We see this happen when it comes to clients who receive shares of 401(k)s or other plans like these. If you receive a percentage of the money in the fund, it could be some months before you receive payment of your sum even if everything was done correctly by your attorney. To make up for this delay, you may want to ask for a share of any earnings on the money or interest to be paid that your spouse receives on the portion of funds that were awarded to you in the divorce. This can be done while your part is still within the plan itself.
What to do if your spouse has taken out a loan from their retirement account?
401(k)s typically allow people to take out loans from their retirement plans by either deducting the loan from either your portion of the account or theirs. If you have been awarded a part of that 401(k), you will need to consider why your spouse took out the loan.
Texas is a community property debt, and therefore debt is part of the estate if taken out during your marriage. However, if the purpose of the loan were to benefit something of your spouse's and had little effect on you, the loan would likely be made a part of your spouse's share of the debt load.
Taxes while dividing up a retirement account
If you have been awarded a portion of your spouse's retirement account in your divorce, this portion will likely be considered taxable income.
However, a savvy person like yourself can avoid paying taxes on this money immediately by rolling it into an IRA or your own 401(k). Under this scenario, you would only owe taxes once the money is withdrawn from the IRA or 401(k).
A final checklist for your consideration
Before we conclude our series of blog posts on retirement plans and divorce, let's go over the essential points that you should consider before finalizing any divorce involving retirement benefits:
- Make sure a QDRO has been drafted according to the plan specifications for your particular retirement plan. The judge will need to sign off on the order before submitting it to the retirement plan for review.
- Your attorney should have been in touch with the plan administrator before submitting the QDRO to ensure their guidelines were followed. This will help speed up the review and submittal process.
- When your Final Decree of Divorce has been drafted, reviewed, and signed by all parties, submit it to the court for the judge's signature. You should include your QDRO and a Motion to Enter QDRO. Ask the clerk of your court for the particulars on how the judge prefers this step to be handled.
- Once the judge signs the QDRO, make sure that your attorney immediately sends it to the plan administrator. The faster this is done, the faster it can be approved, and you can start to receive whatever shares of the retirement fund you are entitled to.
Ask questions of your attorney throughout your divorce
If there is something that you don't understand or you haven't heard from your attorney regarding retirement, please make sure to contact their office to set up a time to speak to them. An engaged client gets what they want, typically speaking.
Remember this, and you will have a much more tolerable divorce experience.
Questions about retirement and your divorce? Contact the Law Office of Bryan Fagan, PLLC
If you have any questions about your divorce and the effect that retirement benefits will have on it, don't hesitate to get in touch with the Law Office of Bryan Fagan, PLLC.
Our licensed family law attorneys are available six days a week to meet with you in a free-of-charge consultation. We can address your questions and provide you with helpful information to assist you as you begin your divorce.
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Other Articles you may be interested in:
- In what ways is a retirement plan divisible?
- Retiring with security after a Divorce
- Dividing a Pension in your Divorce
- Proceeding into divorce aware of risks regarding retirement division, Part Two
- Proceeding into divorce aware of risks regarding retirement division
- Individual Retirement Accounts (IRAs) and your Divorce: Taxes and General Information
- Splitting retirement accounts in a Texas Divorce
- Social Security division in a Divorce
- Will Social Security Benefits play a substantial role in my Texas Divorce?
- Is Social Security Considered Separate Property in a Texas Divorce
- Critical Elements of a Divorce for persons over the age of 50
- 7 Tips for Divorcing After Age 50 in Texas
- Divorcing After Age 50 in Texas: What it Can Mean for You and Your Spouse
- Texas Divorce and Retirement & Employment Benefits by the Numbers
Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC, routinely handles matters that affect children and families. If you have questions regarding divorce, it's essential 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 the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC, 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.