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Retirement Plan Division – The Basics

Retirement planning in connection with a divorce may not be the most exciting topic in the world, but it is important. This is especially true if you are a person who is approaching retirement age or has recently retired. For you, the income that you and your spouse have saved over the years and seen grow is what you are going to be living on for your Golden Years. Making sure that you have sufficient income to pay your bills, buy groceries, and generally enjoy life with your family is the minimum that you should expect out of your retirement savings.

On the other hand, even if you are a younger person who is reading this blog post you should still pay close attention to how your and your spouse’s retirement plan(s) are divided in your divorce. Truth is that if you ask any person who is entering their Golden Years, those folks will tell you that time flies. While retirement may seem like a far-off event to you now will seem less so in a few years. Those intervening years are where your retirement plan does its work for you. Examine your 401(K) at 55 or 60 and you will discover most of the money in the account is growing and not the actual principal contributions that you have made throughout your working life. 

All of this is to say that while retirement plans and division in a divorce are not the most fun topics to discuss they are certainly important. If you are beginning a divorce or just beginning to think about one I would not recommend that you set these issues to the side to worry about at the end of your case. Rather, you should make sure that you are aware of the details of your plans. How much do you have in retirement savings? What do those retirement savings project to be at the age where you intend to retire? If you aren't meeting your savings goals what can do you to change that? Do you need to contribute more money, increase your rate of return, or both?

If nothing else, getting a divorce forces you to take a hard look at different areas of your life (like retirement planning and saving) that you otherwise may neglect. It is human nature to set aside the things that we don't feel like an immediate concern to us. Retirement savings, unless you are entering your Golden Years, is an example of this principle. Your divorce offers you a chance to fine-tune your perspective and become more intentional about your retirement savings. The question that you need to ask yourself is: where do I start?

If you are just beginning to think more in-depth about this subject, then I would recommend starting with this blog post from the Law Office of Bryan Fagan. We are going to discuss some basic topics of property division and retirement savings in a Texas divorce. If you have questions about the material that we share in the blog post, then please do not hesitate to contact our office today for a free-of-charge consultation with one of our experienced family law attorneys. We offer these consultations at our three Houston area office locations, over the phone, and via video.

Make sure to change the beneficiaries on plans and accounts after the divorce

We understand that a lot can be lost in the shuffle as a divorce case ends. Things that can be overlooked unless you pay proper attention to them. Details about your retirement plans may be one of those things that you could overlook when your divorce finally comes to an end. One of the main things that our attorney sees people do that is a major mistake would be to neglect to change the names of beneficiaries on accounts once your case comes to an end. 

One of the great things about retirement plans is that they can pass to heirs and beneficiaries under a will without first having to go through probate. This can save your estate and your beneficiaries a great deal of time and money when it comes time to pass those plans along to others after your passing. However, one of the unfortunate parts of this process occurs if you do not change your beneficiaries on the accounts before you pass away. What you intended to be a great benefit to a loved one may end up being the shock of a lifetime if you do not take the time to update this information while you can.

This is the sad part about beneficiaries under a retirement plan. Nobody knows the moment in time that we will pass on from this life. This is a heavy subject to be discussed in a blog post, but we all know it to be true. Since we don’t know the moment in time that will be our last, we need to take advantage of the time that we do have to update and get our affairs in order when it comes to retirement plan beneficiaries. This goes for all of us whether we are going through a divorce or not. It is especially important to do this after a divorce. Think through who you want to benefit from these accounts and then make those changes at the earliest possible moment after your divorce has come to an end.

This should be done regardless of what occurs in your divorce case. For example, under some retirement plans, the plan holder must first retire to have the money be dispersed too and next spouse. It will not matter if your divorce decree says one thing and the retirement plan itself says something else. In that situation, you will need to still update the beneficiary of your plan if you pass away before retirement age. The word retirement plan will not look to the language of your divorce decree for an intended beneficiary. Rather, the language in your retirement policy would indicate that the beneficiary would receive money before anyone under a divorce decree.

Related to this issue is changing the name on the deed to your house to reflect one party owning it versus two. This is a liability potentially for you and your spouse if one of you leaves the home and the other one remains. Let's walk through a hypothetical example to discuss this point further. Let's assume that your husband decided to keep the house in the divorce, and you readily agreed. After your case, you moved out of the family house and into an apartment. Her husband remained in the house and took over the payment of the mortgage and all the bills.

A month after the divorce came to an end your ex-husband decided to throw a party at the house to celebrate the end of the divorce case. He invited several guests to come over, swim in the pool, and enjoy a cookout. While at the home one of the guests twisted their ankles trying to avoid a broken sprinkler head in the backyard. It was an issue that your ex-husband knew existed but failed to fix before inviting a group of people over to the house. The friend, who suffered a serious ankle injury because of the incident, filed a lawsuit against you and your ex-husband for failing to remedy an unknown hazard at the home.

All this came as a shock to you because you had moved out of the house months earlier and understood the matter to be settled and that it was your husband who would be the responsible party for everything related to the house. While your ex-husband may have updated utility statements and things of that nature to reflect his sole responsibility for those bills if you all did not take the steps necessary to update the title or deed to the home then you put yourself in a position where you would still be liable for any injuries that were sustained at the property. This is true even if you no longer live there in the final decree of divorce stated that the house was no longer yours.

A worthwhile step to follow through with at this stage would be to have a special warranty deed drafted, signed, and filed with the county clerk in your home county that reflected the change in ownership of the home. The special warranty deed would allow you to delete your ownership interest in the home to your ex-husband. Doing so would remove your name from any of the title documents. Therefore, in a situation where an upset houseguest filed a lawsuit for an injury sustained at the property you would not be able to be an unnamed party to the lawsuit. This limits your liability a great deal.

The other side of the coin on this issue would be that there is still the issue of your name appearing on the mortgage to the harm even though you do not live at the home anymore. The simple truth is that most people assume that under a final decree of divorce that as long as the document says that the home is found by your ex-spouse after the divorce you don't have to do anything in terms of bidding paperwork or notifying the home mortgage holder. This could not be farther from the truth, unfortunately. The mortgage holder will not look to a final decree of divorce as a controlling document. Rather, the original mortgage contract signed by you and your spouse would be the one that matters.

You may be asking, therefore, what you can do to limit your liability under a mortgage for a home that you no longer reside in. After all: while your spouse has promised to pay this mortgage after the divorce, he will only have a single income to do so. If he cannot make those mortgage payments on time and in full the mortgage lender would look to him for full payment and could begin foreclosure activity. This can negatively affect you due to your name being on that mortgage. Your credit could be ruined and that would eliminate any chance you would have of being able to purchase a home of your own in the future.

In a situation like this, an experienced family law attorney with the Law Office of Bryan Fagan would recommend he sign a deed of trust to secure assumption along with your ex-spouse. The deed of trust to secure assumption puts you in a position to be able to foreclose upon your ex-spouse if he cannot make payments himself. You would begin to be able to make payments on the mortgage in step to remove your ex-spouse from the house and potentially put the home for sale. This would protect your credit and put you in a position to be able to Do what is necessary to help yourself as much as possible in this regard.

At this point, you may be asking yourself about a refinance of the mortgage. Can you ask or mandate that you expose refinance the mortgage thus creating a brand-new loan in his name only? You can make that a condition of your final decree of divorce but remember that there is no way to guarantee that your ex-husband would be granted his request to refinance the home. After all: the lender would be looking at it from the perspective of only one person's income to pay the same mortgage. Additionally, that might not be something that your ex-husband would even be interested in negotiating for in the divorce given how interest rates have climbed significantly over the past couple of years. There is almost no way to envision a scenario where the interest rate that your ex-husband could get now would be comparable to what you all obtained even a few years ago.

How does Social Security influence a divorce?

If you and your spouse were married for 10 years or more then you would be eligible for spousal benefit regarding your ex-spouse’s Social Security when you reach the age of retirement. In this situation even if you did not work during your marriage, you would be able to take advantage of a higher amount of Social Security benefits as a result of your work exposed work history. Essentially you would be taking credit for his work history and could therefore receive more Social Security than you otherwise would have been entitled to under your record.

This is a situation where you are taking advantage of this entitlement that does not harm your ex-spouse anyway. It is not as if you're taking advantage of these payments would reduce the amount of money that your spouse would be able to receive. If you are in your golden years or are entering your golden years, then you should view Social Security in your retirement savings as partners that can help you enjoy your golden years after your work life has come to an end. However, being aware of potential benefits like this are important to your being able to negotiate fully in your divorce case. You can contact the Social Security Administration and set up an account for yourself to view your benefits and to ask questions about what may be available to you under your ex-spouse and their work history.

Make sure that your money is invested well

The last issue that I would like to discuss with you regarding your retirement savings and your divorce is that you need to properly consider the impact of inflation on your money. Inflation is at the top of everyone's mind these days given the astronomical rates that we have seen our country experience since the beginning of 2021. Inflation is like an additional tax that we all must pay period Simply put, our dollars do not stretch as far when inflation is high. No more proof than simply going to the grocery store and looking at the price of groceries these days is needed to verify this. 

And a typical year, inflation sits at 3%. Therefore, your money needs to be invested in a way that at least makes 3% each year to make up for inflation. While the attorneys with the Law Office of Bryan Fagan are not financial or investment advisors, I can provide information to you at least from the standpoint of keeping in mind the importance of inflation and its impact on your money long term. If you are given a portion of your spouse’s retirement benefits in the divorce you should investigate doing everything you can to make sure that money is invested well and continues to grow and outpace inflation in the years moving forward. 

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.

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