For law enforcement officers, it is effective to think about your retirement as a stool. Our stool has three legs and in the case of your retirement can consist of retirement from the state of Texas, Social Security benefits as well as savings. The state of Texas offers 401K and 457 programs that allow you multiple methods to save money throughout your working life. No matter what we see with inflation or other considerations over the next few years it is safe to say that it is better to have multiple methods of saving for retirement than just lying upon one.
securing your financial future, it’s something that you are certainly capable of as a law enforcement officer. Nobody knows how to better take the bull by the horns and make a positive change than a law enforcement officer. As a result, there are certain steps that you can take both in the short and long term to provide for yourself and your family at retirement. The employee retirement system of Texas provides members a lifetime retirement payment that is based upon different formulas and guidelines that are set forth by the state legislature of Texas.
Whether you are a law enforcement officer or another public sector employee some different rules and calculations apply to your benefits. In today’s blog posts from the Law Office of Bryan Fagan, we are going to walk through some of these rules and calculations to help you better understand what is relevant to you regarding retirement as a law enforcement officer. Our attorneys and staff take a great deal of pride in being able to represent those people such as yourself who defend our community.
If you are interested in learning more about divorce as a law enforcement officer, then please do not hesitate to contact the Law Office of Bryan Fagan today. Our licensed and experienced family law attorneys offer free-of-charge consultations six days a week at our three scenario locations, 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.
Dividing retirement benefits in a divorce
For many of you reading this blog post, your pension or other retirement accounts may be the most asset that you have. Unfortunately, the problem that many people run into who go through a divorce is that they have not considered the outcomes that are possible regarding dividing retirement benefits in a divorce case. There are so many other issues that appear to be just as important as retirement benefits that oftentimes this subject can be left to this site and not properly considered. It is not uncommon to find someone who is unaware that retirement benefits or even subject to division in a Texas divorce.
If you are a law enforcement officer, then your spouse will likely be eligible for a portion of your retirement savings in a divorce scenario. Retirement accounts and pension plans are subject to division as part of the community estate. A family court judge will be charged with determining how to divide up retirement accounts and what rights you and your spouse have to those various accounts. The length of your marriage, length of service in law enforcement, and other factors of your case will determine how your benefits are ultimately divided.
A defined contribution plan is one of the types of retirement accounts that you as a law enforcement officer may have available to you. These types of retirement accounts contributed to buying you and holding assets as a result. The value of these types of defined contribution accounts is based on the amount of money you have contributed over the years as well as growth in the investments. Examples of defined contribution accounts include 401 K and individual retirement accounts.
The general rule of thumb for you to follow regarding these defined contribution accounts is that whatever contributions row made during your marriage are likely to be counted as Community property. An increase in the value of your defined contribution accounts during remarriage is also classified as Community property. What does this all mean? The bottom line is that Community property is subject to division in Texas divorce cases. It doesn’t matter whose account the money is under or whose income was utilized to contribute to these accounts. So long as the money contributed to the growth was accumulated during the marriage then the money is subject to division.
The other main type of retirement account that you should be aware of is a defined benefit account. A defined benefit account would provide you with a certain sum of money for a period during retirement. The sum of money is usually determined by considering of formula based on the length of time that you served in a particular employment role as well as your salary. This means that the longer you have worked for a particular organization or entity and the more money you have made equates to your being able to receive more money every year for a longer period.
The same rule applies to a defined contribution plan as we see here for a defined benefit plan. If you have been married for most or all the time that you have Ben contributing to a defined benefit account, that means that the entirety of the account would be subject to division in your divorce. It can be somewhat more complicated to take into consideration and define a benefit account only because it is not as if you have an account with a large sum of money that could be split without much effort. Rather, a defined benefit account puts you in a position where you are having to estimate but the defined benefit will be years into the future and then divide up the account accordingly.
How do the Community property rules of Texas impact the retirement division?
We have already covered how Texas is a community property state. The rules of Community property division and in Texas divorce also relate to retirement plan division. If, for instance, you are attempting to make an argument that the property in an account is your separate property then you will need to be able to provide proof to the family court that this is the case. Oftentimes this can be one of the more complicated and time-consuming aspects of the entire Community property section of your divorce. This can be done with the assistance of a forensic accountant or another expert who may need to be able to go back and trace the origins of your account as well as the value of the account at the time you got married.
As we have already covered, any assets in your retirement accounts that were earned during the marriage are going to be classified as Community property and are then subject to division during your divorce. This is true whether we are talking about a pension or a 401K account. There are specific benefits regarding retirement that will need to be considered in detail during your divorce case. Law enforcement officers oftentimes receive pensions through their employer that also have specific tax implications and other difficulties in properly considering their value.
On the other hand, a defined contribution plan like a 401K where you contribute money, and your employer may match that contribution means that your contributions would occur regularly. Not only is the principal amount in the 401K subject to division but also any growth and interest gained within the account on top of that. Depending upon your age, the actual principal amount that you have contributed yourself may be relatively small whereas the growth after contribution could be the lion’s share of the account.
There is also something called a deferred compensation account that you should be aware of regarding divorce as a law enforcement officer. This is a type of defined benefit plan where your employer would promise you a specific amount of money monthly during your retirement years. In the alternative, a lump sum could be paid to you upon retirement based on your earning history, age as well as the length of time that you worked for that employer.
If you are just beginning your time as a law enforcement officer, then you may be considering what plan works best for you and what options you have in front of you. Nothing that you read in this blog post should be taken as investment advice or instruction on how to proceed in terms of selecting a vehicle for retirement savings. Rather you can consider the information contained in today’s blog post and then you should contact an investment professional for assistance if he believed that is what you need. Your employer may provide you with investment assistance or your employer may do so, as well.
A Texas family law court has the authority to award your spouse a portion of your pension plan based on the present value of the pension or to award you and your spouse a proportionate share of whatever benefits are in the account at the time of retirement. Usually, pensions have a lower than market average rate of growth in terms of interest. You can look through your pension plan, but it is not uncommon for a pension plan to only have 7 to 8% growth year over year on average. Understand, however, that whatever growth is seen in the account will be treated as Community property and will be subject to division in your divorce.
Figuring out how to best work with your spouse on a division of your various retirement accounts
Fortunately for you and your spouse, you two will have a significant amount of autonomy and authority when it comes to figuring out how to divide your retirement accounts. Many people assume that the family court judge will have the most authority when it comes to dividing up Community property in general and retirement savings specifically. The divorce process in Texas allows for a relatively large amount of downtime that is suitable for negotiation. Negotiations like this can occur informally between the two of you or formally in a setting known as mediation.
The circumstances that you are going through will play a role in helping to determine whether retirement is a subject that you can solve quickly or one that will take a great deal of negotiation one way or the other. One situation in option that could be utilized by you and your spouse when it comes to dividing up retirement accounts would include not doing anything with them. By this, I mean that you and your spouse could both agree to leave the other person’s retirement savings alone and not divide them up in the divorce. We see this happening in situations where both you and your spouse have sizable retirement accounts in your name. If you all are divorcing on good terms and can work together on subjects like this, then simply leaving your retirement accounts alone and focusing your time and energy on other subjects may be the best bet.
Working with your retirement account advisor and plan administrator can allow you to accurately divide up under retirement plan in your name or the name of your spouse with relatively little acrimony. You will need to determine what the current value of the account is and then figure out what portion is part of the community state and what portion is part of your separate estate if any. A qualified domestic relations order will outline how the Community property will be divided. You need to contact your plan administrator to see what language needs to be included in the qualified domestic relations order before the end of the divorce. Including incorrect language or otherwise not preparing can mean delays or an inability to divide retirement benefits accurately.
Depending upon your age and circumstances it may also be an option for you all to consider liquidating some portion of your retirement savings. For example, if it is determined that your retirement account Is subject to division in the divorce then based upon your age you may be able to simply take out some money from the account to meet the standard set by the negotiations for your divorce. You can take out the money and make a lump sum payment to your spouse as long as it makes financial sense and is allowed under your plan.
You should contact your plan administrator before agreeing to any considerations like this to determine the potential consequences of your taking money out of the account. From some retirement plans, you are not able to liquidate the account until you turn age 59.5. liquidating the account before that time means you would incur a tax on the account as well as a penalty of up to 10%. This could make it cost-prohibitive for you to select this option. However, if you are already of retirement age and do not have an account that bears any consequences outside of taxes for liquidating the account then you may choose to take advantage of this option.
Another method of dividing a retirement account that may be effective for you and your spouse to consider would be to offer in exchange for other marital property for retirement savings. For instance, if you do not want to go through the hassle of dividing up your retirement, you may choose to negotiate with your spouse and tell him or her that you are willing to assign him or her an equal share of Community property outside of retirement that is equal to their portion of your retirement savings. The math may work out, for example, where if your spouse is choosing to remain in the family home you could simply choose not to take any equity out of the home yourself and instead leave it all for your spouse. That would allow your spouse to receive property in the divorce and you would not need to divide up your retirement to get him or her that property.
All these options are better understood and more thoroughly discussed when you have an experienced family law attorney by your side to guide you through the process. If you have questions about anything you have read today, please do not hesitate to contact our attorneys through our website or by phone.
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 consultations 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.