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Splitting a Texas Teacher Retirement Account

The Teacher Retirement System of Texas does not require you to divide your retirement benefits in a divorce or in any other situation for that matter. A family court may order you to do so, however. In addition, you, and your spouse as a function of your community property division settlement may have decided to do this through settlement negotiations. 

There are circumstances under which you and your spouse may agree to leave the retirement that you have alone and not divide the benefits. For instance, if your spouse also has retirement income or savings of their own the two of you may agree to leave your retirement savings to the side and not divide up those benefits. Additionally, if there is another asset of equal value that could be given up by you in the community property division then this may be able to keep your benefits from being divided. You may choose to give up a piece of real estate that is worth the same amount of money as your retirement to not have to deal with the process involved in dividing up your retirement benefits.

Whatever you end up deciding to do it is wise to have an attorney by your side to help provide you with information and context throughout this process. It may seem like a no-brainer to do something as far as property division is concerned, only to find out that it is far from the best option. Attorneys who practice family law, such as those with the Law Office of Bryan Fagan, can give you up-to-date information on the laws regarding retirement plan division and community property in Texas. Additionally, you can learn more about how your specific circumstances may be impacted by those laws. This is the sweet spot when it comes to making informed decisions: understanding the law and most importantly how the law can impact you. 

If you do not divide up your teacher retirement system benefits then the Final Decree of Divorce should state this. There should be no confusion about what is happening with your benefits. Work with your attorney to create language for the Final Decree of Divorce that is unequivocal. It should leave nothing to chance as far as what the divorce decree states regarding your retirement benefits earned through years of teaching. 

Whether or not you should contact TRS after your divorce is up to the circumstances of your case. If your spouse had contacted them previously to find out what language needs to be included in Domestic Relations Order (DRO) then the impression that TRS has is that your retirement benefits are going to be divided. To not confuse them it would make sense for you to contact them by writing and phone to let them know that your benefits will remain intact. You may even want to send them a copy of your final decree of divorce to provide them with proof that your TRS benefits will not be divided. 

Another factor to consider is whether temporary orders in your case forced you to stop contributing to your retirement during the divorce case. Non-essential uses of money may have been curtailed to help tighten budgets and control spending during the months of your divorce. If you are a devoted saver, then this may have been a difficult pill to swallow for you. If you had to formally stop saving for retirement, then contacting the TRS after your divorce to show that you can once again contribute to your retirement would be an idea that you should consider. 

Division of benefits under a TRS plan

What happens if the court does divide up your TRS benefits? The first thing that you should consider is how the money is going to be divided. For example, if you and your spouse agreed to have your spouse paid directly by TRS then you should make sure that the manner in that you set that up works for TRS. They cannot honor every final decree of divorce and its language on plan division. Rather, you should check with TRS in advance to see what language needs to be included in the domestic relations order so that a division and payout can be accomplished.

TRS is not a 401K or Individual Retirement Account. There is more to it when it comes to dividing up a plan. The attorneys with the Law Office of Bryan Fagan have represented teachers and the spouses of teachers with great frequency over the years so we are very much familiar with TRS and their retirements for plan division. However, not every family law attorney in southeast Texas can say the same. As a result, you should consider what you need in terms of representation in your divorce. 

A domestic relations order or DRO needs to be used for the retirement system to issue payment to your spouse. There is a model that was created by TRS that you should contact them in advance about so that it can be the basis for a DRO. These models can be filled out using the language of your case and will meet the requirements of TRS as far as sending out money to payees like your spouse. The model that you use depends on if you are an active teacher or are already retired. 

What is a TRS model domestic relations order?

A domestic relations order is an order that is created by a Texas family law court because of a divorce. You and your co-parent will create the document and the court will review, approve, and sign the order. The DRO will award a portion of your TRS benefits to your spouse or ex-spouse because of the divorce. You must understand at least the basics of a DRO so that there is no confusion about how to proceed in handling this important end-of-case matter in your divorce. 

The TRS is not a place where you can simply call them up at the end of your divorce and tell them the percentage of your retirement benefits that need to be paid to your spouse because of the divorce. Rather, TRS needs you to contact them ahead of time to gain access to one of their DRO models. The model that you fill out will depend in large part upon whether you are currently employed as a teacher or are retired/no longer teaching. 

TRS will review your DRO to make sure that it matches their requirements for the distribution of funds to your spouse. If it does, the DRO becomes a qualified domestic relations order or QDRO. TRS will then administer the QDRO based on the language contained in your final decree of divorce as far as the retirement plan division is concerned. You must use the TRS model to divide up the retirement benefits under your plan. 

The model orders are available through the TRS website. If you are not retired under the TRS as of the date of your divorce you should choose the model domestic relations order for active members. On the contrary, you should choose the model domestic relations order for retirees if your TRS retirement date is before the date of your divorce. Be aware that TRS may reject your order as not being qualified if you choose the wrong model by mistake. Do not change language contained in the model order and do not leave language out for any reason.

You should be cautious of engaging in retirement plan benefit division without the assistance of an attorney. Having the advice and counsel of an experienced family law attorney can make a tremendous difference for you in your case. This is complicated and sensitive work that you are doing. Small mistakes or omissions can be the difference between completing your divorce successfully and having unfinished business once your divorce has completed itself.

One of the most frustrating parts of a divorce can be where the vast majority of your case is complete, yet you still have outstanding business to attend to when it comes to retirement plan division. You should be aware that it is possible for the rest of your case to be completed yet to not have successfully divided up the retirement benefits. This can be an extremely frustrating thing to go through for families that have been working hard to complete their cases diligently. All this could have been avoided had you decided to hire an experienced family law attorney to represent and guide you in a divorce.

something that I like to point out is that a family law attorney does not make decisions for you in a divorce case. Rather, an attorney provides information and guidance like a teacher would. an attorney is also an advocate on your behalf should the need arise but in the day-to-day matters regarding your case the attorney provides information and allows you to be better informed and therefore make better decisions regarding all aspects of your case.

What part of your retirement may be subject to division?

Texas is a community property state. This means that a presumption attaches to all your property at the time of your divorce that it is subject to being divided in the divorce. The same rule applies to your retirement benefits. This can appear to be a fairly simple breakdown but in most cases, it becomes fairly complicated. 

It is not easy to quickly determine the portion of your retirement that may be subject to division in your divorce. First, we would look at whatever portion of your retirement was saved during your marriage. If a substantial part of even all of the retirement was contributed to during your marriage, then that is the amount that would be subject to division in the divorce as community property. You would need to use a formula to determine any portion of the savings that would be separate property, contributed to before your marriage, and not subject to division.

That formula would involve you taking the total number of months that you worked and earned credit towards your retirement during your marriage and then dividing that amount by the total number of months you worked and earned credit overall. This would give you the percentage of your benefits that are subject to division in your divorce as community property. Your years of service and salary while working will also help you determine how much your actual benefits will be upon retirement. 

Defined benefits retirement accounts

A defined benefit account provides you with a fixed amount of money (benefit) for a specific period during your retirement years. A defined benefit plan like one offered through TRS determines the amount of benefit using a formula based on how long you have worked as a teacher and your yearly salary over that time. The average salary that you earned over your highest five years of earnings history is used to figure out your retirement benefit. The longer you worked, then the more money you can receive. 

Approaching the subject of retirement plan division

Retirement plan division can either be one of those subjects which gets no attention in a divorce or becomes the most important subject. If you are a young teacher, then your retirement savings may not be that important to you. Suppose that you just started work or have a significant amount of retirement from another job. In that case, your retirement may not be top of mind when it comes to thinking about issues in your divorce. That doesn't mean that you won't ever become concerned about your retirement. All it means is that at this moment you have other concerns on your mind. 

On the other hand, if you are a person who is entering your golden years then you probably have many concerns over retirement savings. Being able to control to some degree your income during your retirement years is crucial to being able to live. Through your many years of teaching, you may be looking at a monthly payout of benefits that is significant, as well. Losing a portion of these benefits because of your divorce may be enough to keep you awake at night. However, there are steps that you can take to not lose control of your case, your retirement, and your sanity during a divorce. 

First, it pays to be able to have a plan when it comes to your retirement. So much of this subject will already have been decided by the time it comes around to your divorce. You won't be able to change how much money you've earned in your career, how long your career has been or how much money you are expected to be paid monthly at retirement. These are all factors that nobody involved in your case can change. 

However, you can start thinking critically about the case in terms of how you want to protect your retirement. For example, you can start to look at your retirement as far as poker chips all being in the middle of a table. All those poker chips in the middle of your table need to be pushed to one side or the other. To you or your spouse will all that community property go? There are many options for you to consider about how to divide up community property. The key will be doing so in a way that is fair but protects the savings that you have worked so hard to build up throughout your working life. 

You may be able to work with your spouse to simply not touch your retirement. This can be an option if your spouse has retirement savings that are of equal or near equal value. You may have to perform some sort of comparison between a pension plan and a 401K, but they can be accomplished if you are diligent. Start with considering what property can be exchanged in place of retirement. You may be able to execute a trade that is desirable to your spouse. 

Otherwise, your spouse may be in a position where he needs money now- liquidity is key. Cash may be more helpful to your spouse. For example, suppose that he wants to open a business now that he will have more time on his hands after the divorce. A retirement plan may be helpful when it comes to living comfortably as a senior, but as a middle-aged person trying to open a business, a retirement plan probably won't help him much. Maybe you offer to trade him a brokerage account instead of diving into your TRS benefits?

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's circumstances may be impacted by the filing of a divorce or child custody case.

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