Dividing Retirement Accounts in a Houston Divorce
Protecting Your Financial Future After a Divorce
Retirement accounts are a critical consideration in a divorce. Although they might be in one spouse’s name or only one spouse contributed to them, they could be split equitably between the divorcing spouses, provided that they meet Texas’s definition of community property. Certain rules exist concerning the division of retirement accounts depending on their type. Still, the spouses may agree on alternative resolutions to protect their personal benefits. Because of the procedures involved and the fact that retirement accounts can be both community and separate property, partitioning these assets can be complicated. That is why it is important to have the careful eye of a family law attorney review your situation to facilitate fairness in divvying up the accounts and protect your best interests.
At the Law Office of Bryan Fagan, PLLC, we recognize the importance of securing your financial future following a divorce. Our Houston attorneys can help you understand how retirements are divided and answer your questions and concerns. Delivering personalized and compassionate legal representation, we will consider your wants and needs and develop a legal strategy to pursue a just resolution in your case.
To schedule a free initial consultation, contact us at (281) 810-9760 today.
Types of Retirement Accounts
One of the factors in determining how retirement is divided in a divorce is the kind of account it is. Although many plans follow similar rules when splitting benefits between former spouses, some may depend on the length of the marriage (such as Social Security benefits) or may be distributed to an alternate payee only if certain documentation is received.
Examples of retirements that may be divided in a divorce include:
- Individual Retirement Accounts (IRAs),
- Military retirement, and
- Profit-sharing plans.
You and your spouse can identify the types of accounts each has during the discovery phase of your divorce. During the process, you both exchange material information about your personal situations, including your financial assets.
Determining Whether a Retirement Account Is Community or Separate Property
Texas operates under community property law. The doctrine provides that any assets acquired or accumulated during the marriage are community property and belong equally to both spouses. The court can divide the assets equitably among the parties in a divorce.
In contrast, anything obtained before the marriage is separate property. Courts do not have jurisdiction to split these assets. Instead, the spouse who acquired them keeps them.
Establishing whether a retirement account is community or separate property is essential, as it determines whether benefits are divided between the spouses. Yet, making the distinction is not always straightforward. Whereas some accounts can be solely community or solely separate property, others can be both.
To illustrate, one spouse may have contributed to a retirement plan before the marriage and maintained it during marriage. In this situation, the contributions prior to the marriage are considered separate property and remain with the spouse who paid into the plan. The contributions during the marriage are considered community property and distributed equitably upon the divorce.
It is important when preparing your financial information for your divorce that you note:
- When you started contributing to your retirement account: Comparing the start date to your marriage date will determine whether part of your plan’s contributions may be separate property.
- How much you had in the account before your marriage: The pre-marriage balance is the amount a judge cannot divide during your divorce.
- How much you have in the account at the time of your divorce: The current balance is the amount a judge can divide in your divorce.
When retirements are divided in a Houston divorce, it does not matter whose name is on the account or whose income was deposited into the plan. Any contributions made during the marriage are considered community property and subject to Texas’s division rules.
Distributing Retirement Benefits
In most cases, it’s not enough to have indicated on your divorce decree that retirement benefits will be split between you and your spouse. Many plan administrators also require a document called a Qualified Domestic Relations Order (QDRO).
The QDRO is signed by the judge and directs the administrator to separate the retirement into one account for you and one for your spouse. The spouse who did not contribute to the plan is considered the alternate payee and will receive a portion of the benefits.
For some retirement accounts, benefits can be distributed to an alternate payee only after certain conditions are met.
Examples of accounts with special considerations include:
- Social Security benefits: For you or your spouse to receive the others benefits, you would have had to have been married for at least 10 years. Additionally, the spouse seeking benefits must be unmarried, at least 62 years of age, and be entitled to receive less than their former spouse's benefits.
- Military retirement: For you or your spouse to receive the other’s military retirement benefits, you must have been married at least 10 years and the service member must have served for 10 years or more during the marriage. A Texas judge will divide disposable retirement pay based on what they determine is just.
Protecting Your Retirement Benefits in a Divorce
Although it is possible for the court to divide your and your spouse’s retirement accounts during your divorce, it is also possible for you and your spouse to agree on how benefits are split. You and your spouse may be able to keep the benefits of an account you contributed to yourselves through alternative resolution methods.
Options for protecting your retirement benefits include:
- Retaining personal accounts: You and your spouse may agree to hang on to accounts in your own names rather than dividing them.
- Exchanging assets: You and your spouse may decide that the person who contributed to the account should keep it. However, they must relinquish property with a value comparable to what the other spouse would have received had benefits been split.
Schedule a Free Consultation with the Law Office of Bryan Fagan, PLLC
When dividing retirement accounts in a Houston divorce, you have a lot to consider. Our lawyers can examine your and your spouse's finances to determine what’s community and separate property. We can also advise on what paths you can pursue to retain your own retirement account.