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 you 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 just 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 that 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 in regard to 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. Stick with me on this one. I know that retirement plans are not an overly interesting topic, but they are certainly important.
What exactly is a retirement plan?
In the world of retirement benefits we are talking about more than just the common workplace 401(k) that you may have been investing into 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, range of control that you can exert over each as well as how early in life you can actually access the money without suffering a penalty. I’m not in a position to guide you on any of those kind of subjects, but I can talk to you about how retirement benefits impact a divorce.
If you haven’t worked at all during the course of 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 over the course of those twenty-five-years. He has built his 401(k) plan up to being worth nearly $1,000,000 over the course of those twenty-five-years. It has always been something that has given you great comfort-knowing that due to your thrifty ways that during your golden years there would be a nice chunk of change available to fall back on. 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 the course of your marriage then you will be in good shape as far as having a right to a portion of those funds in your divorce. The reason being that contributions to a retirement fund during the course of your marriage are almost surely community property and thus divisible in the divorce. However, if any contributions were made before your divorce that money would be considered to be the separate property of your spouse 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 sort of 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 draw no distinction between 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 names is divisible, 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 divorce?
The lawyer’s favorite answer to any legal question is: it depends. That answer applies to the question about 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 do not look to the length of the marriage in order to determine whether or not the account is divisible. A 401(k) can be divided up no matter how long the marriage lasted. However, for a short marriage very little of the 401(k) would be considered community property.
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 prior to 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 paystubs if you have access to those. From there you can see if he or she has 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 over to you 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 an opportunity to play nice in the sandbox with the other party. Basically, 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 that you have to do during your divorce but it is an option in the event that your spouse begins to draw from the 401(k). He or she may be wasting community assets which carries with it 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 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 but 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 in the near future 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 have the ability to negotiate on every part of your divorce including how retirement benefits are divided up. For instance, instead of dividing up your retirement you may choose to allow your spouse to keep an equal portion of your community estate rather than to 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 just agree to let your spouse keep your lake house whose value is approximately $250,000.
How do you get the money that is awarded to you in the divorce from your spouse’s 401(k) plan?
This is a very practical question that needs to be asked in every divorce where retirement benefits are to be divided. The process of obtaining the money that is 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 in order 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.