No matter what age you are, it is worth your while to consider what you want your life to look like when you reach retirement age. For some of you who are reading this blog, post-retirement may be the farthest thing from your mind. For others, retirement may be a reality that is right around the corner. Whatever season in life you find yourself in, know that you should be planning for your retirement with as much attention as you can muster. Not all of us earn the same income, but it is possible to act intentionally towards retirement goals with the income that you do have.
This is true in the midst of a divorce, as well. Just because you have other issues that appear to be more pressing doesn't mean that you can neglect consideration of what is happening with your retirement accounts during your divorce. If you haven't done so in a while, go ahead and check up on your 401(k). I bet you will be surprised to learn how much more money there is in there than you had even a few months ago. The reality that you are facing is that the effort it took to build that account into what it is today could be wiped out in a divorce.
Today's blog post from the Law Office of Bryan Fagan will walk you through the essential pieces of information that you need to have regarding retirement plan division in a Texas divorce. We will define what a retirement plan means, walk you through an introduction to community property law and then discuss just how the division of a retirement plan works in a Texas divorce. Please stick with me on this one. I know that retirement plans are not an overly exciting topic, but they are undoubtedly important.
What exactly is a retirement plan?
In the world of retirement benefits, we are talking about more than just the everyday workplace 401(k) that you may have been investing in for years. In addition to 401(k) plans, we need to consider pension plans, deferred compensation plans, Individual Retirement Accounts (IRAs), and a range of other, less common retirement vehicles. These plans offer different advantages as far as taxes, range of investment options, the span of control you can exert over each, and how early in life you can access the money without suffering a penalty. I'm not in a position to guide you on any of those kinds of subjects, but I can talk to you about how retirement benefits impact a divorce.
If you haven't worked during your marriage, are you entitled to any portion of your spouse's 401(k)?
Let's consider a situation that comes up with great frequency in divorce cases. Suppose that you and your husband have been married for the past twenty-five years. In the course of that twenty-five-year marriage, you have never earned an income. You've taken care of the house, your children, supported your husband's career and done whatever has been asked of you in terms of keeping the home front running smoothly. With that said, however, you have never worked outside the home and have no retirement plans in your name.
However, your husband has worked for the same company for those twenty-five years. He has built his 401(k) plan up to be worth nearly $1,000,000 over those twenty-five years. It has always been something that has given you great comfort-knowing that there would be a nice chunk of change available to fall back on due to your thrifty ways during your golden years. That peace of mind turned into great unease when your husband filed for divorce from you. Would that money go away now that you are headed for divorce?
The big question that you need to ask yourself is when did the contributions to your spouse's retirement account occur. Using the above example, if your spouse's retirement account has contributions that are almost entirely during your marriage, you will be in good shape as far as having a right to a portion of those funds in your divorce. The reason is that contributions to a retirement fund during your marriage are almost community property and thus divisible in the divorce. However, if any gifts were made before your divorce, that money would be considered your spouse's separate property and not eligible to be divided in the divorce.
Do not worry that your spouse's retirement account does not bear your name on it. I'm not aware of any retirement vehicle (out of the ones that we mentioned at the outset of today's blog post) that can be named in both your name and your spouse's name. Just because the account has only your spouse's name does not mean that he owns all of it. The community property laws of our state do not distinguish accounts that bear one person's name or both names. It would be divisible under the same legal theory that a bank account with both of your characters is separable, as well.
What happens if you and your spouse were married only a short time. Does that impact whether or not the account can be divided in a divorce?
The lawyer's favorite answer to any legal question is: it depends. That answer applies to the question of whether or not the length of your marriage has any impact on whether or not the retirement account in question can be divided up. The vast majority of retirement accounts for people who do not look to the length of the marriage to determine whether the statement is divisible. A 401(k) can be divided up no matter how long the marriage lasts. However, very little of the 401(k) would be considered community property for a short wedding.
What if you have no idea what is going on with your spouse's retirement?
Let's further assume that you have had no conversations with your spouse on retirement before the beginning of your divorce. He handled the bills and made all the money. You didn't take much ownership over the situation during the marriage, and now that you are divorced, you have little access to the paperwork and accounts online that you could have accessed previously. Now that your spouse has moved out of the house and taken his paperwork with him, how can you figure out what accounts are in play during your divorce?
First of all, you can look at your spouse's pay stubs if you have access to those. From there, you can see if they have had any money taken out for retirement purposes. The other thing to keep in mind is that your attorney can submit discovery requests to your spouse wherein you ask him to send any information on his retirement to you and your lawyer. From there, you can learn what sort of retirement accounts he has invested in and how much money is at stake.
What happens If your spouse wants to withdraw all the money from the 401(k) before the divorce is over with?
Suppose that you and your spouse are in your sixties. Your spouse can thus access his 401(k) without incurring a penalty. You have learned that he plans to do just that. What can you do to protect this money and to ensure that he doesn't drain the account before you have an opportunity to negotiate for its division?
Fortunately for you, most counties in southeast Texas have either standing orders or an opportunity to negotiate for temporary orders. These are orders set forth by the court that ensure that both sides have a chance to play nice in the sandbox with the other party. The standing orders/temporary orders will maintain the status quo during the divorce so that large sums of money are not spent and retirement accounts are not drained.
If your spouse (or you, for that matter) violate one of the orders in a temporary order or standing order, then you are subject to consequences to be determined by the judge. Enforcing temporary orders and standing orders is hopefully not something you have to do during your divorce, but it is an option if your spouse begins to draw from the 401(k). They may be wasting community assets that carry with them penalties of their own.
Will you get half of your spouse's retirement benefits in your divorce no matter what?
This is the common understanding that most people have headed into a divorce. Since most folks know that Texas is a community property state, it is presumed that this means a straight, 50/50 split of the retirement benefits inside a 401(k) will be forthcoming in the divorce. While this is a possibility, it is certainly not a given. You can speak to one of our attorneys about this in greater detail, but I can tell you that there are factors involved in a divorce that could result in your receiving a greater than 50% share of the money inside the 401(k). It can also happen that you receive less. The main reason that could cause some deviation is a fault in the breakup of your marriage.
On the other hand, I think it is likely that in a typical Texas divorce that roughly half of the retirement savings will go to one spouse, and half will go to the other. Do not make assumptions and then plan according to those assumptions. Still, you can rest assured that unless you have wasted community funds previously or have caused the breakup of the marriage in a manner that results in your being found to be at fault for the divorce, that a 50% split of the 401(k) funds may be short for you and your spouse.
How can you protect your retirement savings in a Texas divorce?
If your goal is to protect your retirement savings, then you should pay close attention to this final section of today's blog post. First of all, you and your spouse can negotiate on every part of your divorce, including how retirement benefits are divided up. For instance, instead of dividing up your retirement, you may allow your spouse to keep an equal portion of your community estate rather than get your retirement savings in the divorce. For instance, if your spouse would ordinarily be entitled to a 50% share of your retirement account worth $500,000, you could agree to let your spouse keep your lake house, whose value is approximately $250,000.
How do you get the money awarded to you in the divorce from your spouse's 401(k) plan?
This is an efficient question that needs to be asked in every divorce where retirement benefits are divided. The process of obtaining the money coming to you occurs at the end of a divorce but cannot be overlooked. It involves the submittal of a Qualified Domestic Relations Order (QDRO) first to the judge of your court to obtain their signature, then to the plan administrator for the 401(k). These steps can be complicated, and you need to follow a process to get this done correctly. It is advisable to have an attorney's guidance in this area if for no other reason.
Questions about dividing up a 401(k) in a Texas divorce? Contact the Law Office of Bryan Fagan
If you have any questions about the material that we discussed in today's blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week where we can answer your questions and address the issues of your case head-on. We appreciate you spending part of your day with us here and hope that you will return tomorrow, as well.