Divorce and Your Retirement Savings

One of the most important parts of a divorce in Texas is determining how your community property estate will be divided. This is a complex subject given that not only do you have to concern yourself with determining what belongs in your community estate, but you also must determine the value of the property in your community estate and then figure out a way to divide the property between you and your spouse. This is a difficult task, to begin with before you even account for the reality that you and your spouse likely do not agree on every subject under the sun when it comes to your property.

Despite this challenge, you need to remain positive when it comes to accomplishing your goals. Getting caught up in the difficulty of the process can be enough for anyone to lose hope that not only will your case ever come to an end but that you will be able to arrive at a fair outcome when it comes to your community property division. Sometimes when you do not know where you are going that feeling of dismay can grow significantly. With that said, I hope that today’s blog post can provide you with a better idea about what goes into determining the property in your community estate as well as how to best divide that property. We will focus, as the title to today’s blog post would indicate, on matters related to your retirement savings.

Retirement savings can represent not only a substantial part of your community estates value but also a lot of hard work and goal-oriented saving. As a result of the effort that you put into saving throughout your working life retirement can take on added importance when it comes to your divorce. If it were money in a savings or checking account, then you may have less of an emotional attachment. However, because we are discussing something that you have contributed to over many years the importance can take on added meaning for you and your family. What was supposed to be your nest egg has turned into a negotiating point in your divorce. Having to shift your frame of mind in this regard can be among the most important steps you take towards a successful resolution of your case.

What do I mean by this? If you continue to think about your retirement savings as something that cannot be touched were considered until you are much older then you will suffer when it comes to being able to negotiate successfully on Community property. Something that I heard many years ago about divorce that I think is extremely true is that divorce turns a marriage relationship into a business transaction. As a result, it is up to you and your spouse to work together in a productive way to manage the circumstances of your divorce together. This can be difficult considering how you and your spouse may not be seeing eye to eye on much of anything at this time. However, the better the both of you can set aside these differences the more likely you will be to reach outcomes and conclusions that are beneficial to both of you.

Before we get into how you may choose to divide up your community estate, I would like to spend some time going over how Community property is treated in a Texas divorce. This is a subject that is seemingly simple but is at the same time rather complex. So much of a divorce is spent in negotiation that learning how the ins and outs of Community property division work can be extremely beneficial to you and your case. The last thing you want to do is to be involved in a divorce where you don’t know the rules and leave everything up to your lawyer. This goes against the purpose of a divorce which is to allow you and your spouse to play the central role in determining how your lives are going to be managed after the divorce comes to an end. If you leave all the decision-making up to your attorney, then you are not going to be satisfied by the results and your attorney will not be able to do their job which is to educate and guide you to help you make the right decisions for yourself.

Without a doubt, nobody knows your circumstances and goals better than you and your spouse. The irony, of course, is that while the two of you know your circumstances better than anyone you are also or in a position where you may disagree on almost all those circumstances. While you cannot rest on your laurels and make assumptions about how the case will proceed there are certain aspects to the case that you can work towards when it comes to adequately preparing yourself for what lies ahead. Retirement savings is typically a fairly dry subject in most circumstances but it can take on added interest depending upon the circumstances of your case and the ages of you and your co-parent.

Community property issues and Texas divorces

The basic presumption in your divorce will be that all the property owned at the time of your divorce by you and your spouse is Community property. This means that you and your spouse own that property as a team. It is not that you own half of the property, and your spouse owns the other half. Rather, each of you owns a 100% interest in the property, and therefore you must spend a significant part of your divorce figuring out how to divide that property up. The presumption that all property owned by you and your spouse is Community property can be rebutted if you and your spouse believe that either of you owns any property better classified as separate property.

Separate property is classified as any property owned by you or your spouse before your marriage. Additionally, if you inherited any property during your marriage or were gifted any property while your marriage that property would count as its separate property, as well. Depending upon the length of your marriage you may own a relatively small amount of separate property for a relatively large amount. This will play a role in determining how much Community property you may be able to keep after a divorce especially if your case goes to a trial.

For example, suppose that you have a relatively large separatist state while your spouse’s separated state is rather small. In that case, a judge may be led to believe that it is more equitable to award your spouse a larger share of your community estate due to their having a smaller separate estate. You would need to examine the totality of this circumstance in your divorce to be able to determine what a judge you could do in dividing up your estate in this way.

However, you and your spouse will have ample opportunity to negotiate your way through the issues of dividing your community estate. Most of the time spouses in your position can negotiate through divorce rather than go to trial and have a judge have the final say. Your level of preparedness plays a big part in this discussion. The better prepared you are the more likely you will be able to take control of your divorce rather than default 2 meeting a family court judge to play tiebreaker between you and your spouse.

What is most important to you?

When it comes to dividing up your community or state you need to have a plan. That plan begins and ends with figuring out what is the most important aspect of this area of your case. You would need to examine you are goals, financial situation, education, age, and job history to be able to answer this question in full. For many people, being able to keep as much of your retirement as possible is extremely important due to your age. On the other hand, if there is another area of your case that is more important to you then you may be willing to allow your spouse to receive a large portion of your retirement in exchange for something else. These should not be considerations that you are making for the first time in final orders mediation. Rather, these should have been thoughts that you had long before sitting down to negotiate for final orders. If not, you run the risk of making decisions that are not well thought out and may not be to your advantage.

For example, if you are the spouse who has always stayed at home to care for your family and has not worked in many years then being able to have access to a substantial amount of retirement benefits may be extremely attractive to you. The reality is that despite your having played a large role in the financial success of your family you may have little retirement to your name and less education than your spouse. This is not an issue when you and your spouse share retirement in the marriage period however, the prospect of losing a great deal of that retirement could be extremely worrisome to you. After all: you contributed financially by caring for the house, preparing meals, caring for the children, and possibly even working part-time to contribute however you were able. To think that you did not contribute financially to the household, even if you weren’t working, would be completely inaccurate.

Walking through this subject matter in a negotiation means that you need to be able to have your ducks in a row as far as an understanding of what type of money is at stake. In divorce scenarios, I will work with clients to ensure that we have accurate numbers before mediation so that the opposing attorney and I can agree on what figures we were going over. If we cannot agree on what is at stake, then there is little sense in negotiating. However, by requesting up-to-date statements of benefits you and your spouse can work with one another on determining how those benefits should be divided. Many times, you all may be able to work with your attorneys to come to some conclusions even before mediation thereby making the process even more streamlined.

Another type of consideration you must give when it comes to retirement is that there are many different types of retirement vehicles that you and your spouse may have available to you. Individual retirement accounts, 401Ks, 403 B’s, pension accounts thrift savings plans, and the list goes on and on. Additionally, if you or your spouse are veterans or active-duty members of the military then there are special requirements in place for you all when it comes to being able to receive benefits through the military as the result of a divorce.

With so many factors in play, you must have competent representation to assist you in negotiations. Not only that but to help you ensure that the money you have been awarded in a divorce settlement gets to your bank account is all the more reason to have confident representation. Once your divorce is done and over with it is difficult to be able to have a court redo any mistakes that were made regarding these subjects. Therefore, it is better to not have made mistakes at all. The best way to ensure that this happens is to have an attorney guiding you who has worked through cases like this. Hiring an attorney who does not practice primarily in family law can be a significant mistake.

Is your retirement account part of the community estate or one of your separate estates?

Retirement accounts can only be in your name for your spouse’s name. This is unlike bank accounts or other investments. Despite the account only having one person’s name on it, any money that is deposited into these retirement accounts during the marriage is Community property. It does not matter whose income was contributed to those accounts. Depending upon the length of your marriage it may be that you and your spouse have retirement accounts that predated your wedding day. However, if you subsequently deposited money in two of those accounts during your marriage then you have a situation where part of the retirement account is separate property in part is Community property. when you consider fluctuations in value as well as how much interest accumulated before your marriage and how much is crude after you have a complicated circumstance on your hands.

If you find yourself in a position where your retirement funds are going to be divided, then there are rules to apply to avoid tax problems down the line. Most retirement accounts offer penalties to persons who take out money before a certain age. There is a federal law known as the employee retirement income savings acct that allows you and your spouse to divide your retirement income during the divorce without suffering tax penalties.

The most common way to do so is through a qualified domestic relations order. This is an order that is granted by the court that allows a retirement plan administrator to be distributed according to the terms of a divorce decree. The qualified domestic relations order is a separate document from the final decree of divorce. In most cases, the qualified domestic relations order is submitted to the judge for their signature at the same time as a final decree of divorce.

Once the qualified domestic relations order is signed by the judge you would send it to the plan administrator for your or your spouse’s retirement plan. Once the plan administrator approves the qualified domestic relations order, you would be able to choose to have those retirement funds rolled into an individual retirement account without any tax problems. On the other hand, you may choose to receive those retirement funds after the divorce in which case those funds will be taxed like ordinary income.

Finally, if you need to divide up an individual retirement account then you should know that you can transfer funds to your ex-spouse without tax penalties. However, this is only true if that transfer is provided for in your final decree of divorce. You must be specific in the decree with how much money will be transferred to your ex-spouse and sent then to the plan administrator for your retirement account. The plan administrator will then divide the IRA as directed by the final decree of divorce. There are no taxes for this transfer. If after the divorce you choose to divide our retirement account and in either fashion, there will be taxes involved.

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained 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 consultation six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as about how your family circumstances may be impacted by the filing of a divorce or child custody case.


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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 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 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, 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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