If there is one topic concerning divorces that I think is probably the least interesting in people who go through divorces, it is the 401K division. In the best of times, we will typically leave discussions of this subject to our financial advisor and two reviewing quarterly or biannual statements about how our 401K investments are doing relative to the market. Watching grass grow, watching paint dry, and reading about retirement savings and 401K plans are all up there in terms of some of the most boring discussions a person can have.
However, the subject matter of dividing up a 401K in a divorce is essential. Many of you have worked hard over a long time to save up for retirement. How many of us do I lay awake on occasion at night thinking about what our golden years are going to be like in whether or not we're going to have enough in the bank to afford the basics of life like health insurance, food, shelter, and enough security to be able to do nice things for our families? This is a concern even for those doing well financially but is insecure about their post-working lives.
In this case, your post-work life in your post-divorce life, crashing together, and we n need to decide how you can best prepare two divides to your retirement savings contained in a 401K. Keep in mind that your retirement savings in this discussion as a whole are a part of a much larger discussion that deal with community property and how it is divided between you and your spouse. Like anything else in the divorce, the subject of retirement savings and how retirement savings in a 401K are divided is not limited to this area of your case alone. How your retirement savings will be divided can have a significant impact on other areas of your case.
With that in mind, I think the most logical way to attack this subject will be to look at it from the perspective of how community property is classified and divided in a divorce in Texas, then how retirement planning and saving falls into that discussion, and finally how the division of your retirement benefits can impact other areas of your case. To start the meeting, I will lay a hypothetical individual. We will base our remaining sections of the blog posts on this hypothetical person and how they could see things play out regarding their 401K, property division, and their divorce as a whole.
Dividing marital property in a Texas divorce
the property that you and your spouse own will be divided under the Community property laws in Texas. To examine this subject, I will assume that you are a married woman in her 50s. You are still working and have some retirement savings within a 401K through your employer. You have no children who are 18 and are therefore not legally responsible for caring for your children at this stage in your life. You have no major medical concerns, but then again, you don't know how much longer you will be able to work at your current level.
On the other hand, your spouse, a man in his 50s, is a successful professional and has a workplace 401K that he has contributed to consistently over the past 25 years. Given that your marriage has lasted 25 years, most of the contributions to each of your retirement plans have come during your marriage period; this will prove to be an essential fact when we enter our discussion of how the Community property portions of that retirement account are divided. Keep in mind that your spouse has been the primary breadwinner and works in a field where he can conceivably continue to engage in employment for many years into the future. Not only that, but his ability to increase his income significantly is available to him should he need or want to begin to earn more money.
Community property law in Texas dictates that all property owned by you and your spouse at the time of your divorce is Community property. Importantly, Community property is subject to being divided in the divorce. Therefore, it is presumed that every piece of property you own at the time of your divorce will be divided in the divorce case itself. But it would be best if you kept in mind is that there are ways to avoid needing to adhere to every element of Community property law but that you and your spouse we'll need to work together to divide up your community estate as a team. Otherwise, a judge will adhere to Community property laws, which could impact your divorce in significant ways.
When I say that all property is presumed to be community-owned at the time of your divorce, I do not just mean physical property. I mean all property: your vehicles, your home, your bank account, your personal property, real estate, and even your retirement accounts. In Texas, the law does not distinguish between property that bears your name or bears the name of your spouse. There is no designation for your Community property, and your spouse is Community property. So long as the property was purchased or acquired during your marriage, it will be Community property in a divorce. That means you and your spouse will likely need to have it divided up in some form and fashion.
As opposed to Community property, separate property is any property owned by you or your spouse that was acquired or purchased before the beginning of your marriage. For most of us, if we started off our marriages with little in the way of income or property then you, can presume that almost all of your property owned at the time of your divorce is Community property. For those of you who got married later in life, you may have more separate property than other people do. Using our hypothetical example from above, if you f, all into the same category as this woman, then you, your that most all of property is Community property given the length of your marriage and your age now.
If you find yourself in a position where you need to prove that particular pieces of property are separate property, then there are two ways you can go about doing this. The first is to point out to your spouse that property is yours separately. Your spouse will likely do the same thing. Most of the time, spouses can agree on just about all of their property falling into a category of community or separately owned. Suppose you find yourself in a position where you need to prove that property is separately owned. In that case, you will need to provide a paper trail, receipts, purchase documents, or title documents showing that particular pieces of property are individually rather than community-owned.
The importance of dividing up Retirement benefits in a Texas divorce
Now that we have discussed some of the more essential bits of information regarding Community property law in Texas, we can get down to discussing the importance of how your 401K is divided in Texas. We want to make sure that the accounts are divided up in a way that is agreeable to you and your spouse following the agreed-upon method you arrive at in mediation. The money can be transferred expeditiously and correctly after the conclusion of the divorce. You want to avoid a situation where you could successfully negotiate through this issue with your spouse. Still, because of some problems in drafting paperwork, the money cannot be transferred or divided easily.
Find yourself in a position like our hypothetical woman from above. You and your attorney should obtain from your spouse's retirement plan administrator the language that needs to be included in your final divorce decree as far as how his 401K can be divided. Each retirement plan from various companies will require that specific language be included in divorce paperwork that allows a plan administrator to divide up the 401K as the parties wish. Your attorney should obtain from your spouse's attorney the name and contact information for the plan administrator. That way, you all will know what needs to be contained in your final decree of divorce and any other necessary paperwork to divide up the retirement account.
One additional document that will almost always be needed in a divorce to divide up retirement benefits and a 401K is a qualified domestic relations order. A QDRO for short, an eligible domestic relations order, will spell out in greater detail how a specifands behind how the 401K is to be divided up between you and your spouse after a divorce. Depending on your spouse's employer, you will need to get permission from the plan administrator and how this document needs to be drafted. As suggested by the name of the document, it is a court order and therefore needs to be signed off on by a judge before it having any legal effect.
In terms of preparation, the woman that we have discussed in today's blog post and you should include this qualified domestic relations order in your final paperwork to be signed by the judge after your case. You want to avoid a situation where the judge signs off on your final decree of divorce sign off on the qualified domestic relations order. This presents a case where your attorney will have to go back after the conclusion of your divorce to seek the judge's signature on this document. This offers needless delays then you may find that a judge is unwilling to sign unless you request a hearing to cover this subject.
In conclusion, you will want to make sure that you consider your divorce case when determining how a retirement benefit should be divided. For example, column, if you fall under the same category as the woman above, where your spouse is the primary breadwinner, and you have less of an opportunity to earn additional money for retirement later in life, and you may want to be more aggressive in negotiating for division of this 401K benefit. Rather than pulling numbers out of the air, it would help if you had your retirement benefit laid next to your spouse's so that he can tell where you are coming from concerning the positions you hold.
If the retirement benefit is not sufficient for your retirement needs to be met in combination with your retirement benefits, then you may need to request post-divorce spousal maintenance from your spouse. Spousal maintenance can be ordered and negotiated for through something called contractual alimony. Contractual alimony allows you and your spouse to negotiate upon a set amount of post-divorce spousal support to be paid from him to you for a specific time; this would make up for the lack of retirement benefits that could be derived from either of your 401K's. In addition, should your case make it to a trial and judge, I award you spousal maintenance based on the length of your marriage and other circumstances in your case, such as your future needs and your ability to enter the economy and earning income for yourself.
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 covered in today's blog post. I recommend that you 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, in via video. These consultations are an excellent way for you to learn more about Texas family law and our services to our clients.