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How Is Retirement Split in a Divorce? Retirement Accounts and Your Financial Future

Andrew Tisdale | August 28, 2024

When you get a divorce, assets may need to be split. This can be a complex process, especially when you’re dividing retirement accounts in a divorce, as contributions to these accounts may be either separate or community property and are commonly not accessible while the divorce is being settled. The experienced divorce lawyers at Goranson Bain Ausley, can help you determine how to divide your retirement in a divorce.

Do You Need to Divide Your Entire Retirement Account?

If you contributed to your retirement account while you were married, those contributions are community property, and need to be split with your spouse. However, if you set up the account and started making contributions before you got married, the portion deposited before the marriage is separate property, meaning that you’ll keep it and it won’t be included in the property division process. Documenting which contributions were made, and when, can be challenging, and you may need a forensic accountant to help you trace and characterize all the money in your retirement account.

Types of Retirement Accounts That Can Be Subject to Division

• Individual Retirement Accounts (IRAs): These include traditional, Roth, and SEP IRAs, each with specific rules regarding contributions, limits, and tax implications. The amount to be given to the account holder’s spouse is typically transferred directly into their own IRA.
• Defined Contribution Plans (e.g., 401(k)s): These are employment-based plans allowing for employee contributions, sometimes matched by the employer, which are then invested. If the account includes both separate and community property, gains in value attributed to the separate property are also separate property.
• Defined Benefit Pension Plans: Unlike IRAs and 401(k)s, these plans offer a predetermined benefit upon retirement, calculated based on factors like employment duration and salary. The amount of benefits earned or contributed during the marriages must be divided with your spouse.

Is Dividing Your Retirement Always Necessary?

It is not always a given that your retirement will need to be divided. If you have a prenuptial agreement in place that says that you’ll retain full ownership of your retirement, the terms of that agreement should be followed. If you do need to divide the value of your retirement account, you could work out an agreement with your spouse that allows you to compensate them in some other way, leaving the account intact. For instance, if you need to give them half of your $20,000 retirement account, but you also own a car together that’s worth $20,000, you might agree to give them the car if they let you keep all of your retirement money.

Will the Division of Retirement Accounts in a Divorce Be 50/50?

Under Texas law, property division should be done in a manner that is “just and right”, which may not always mean a 50/50 split. Rather, the court will determine what’s equitable, taking into account both spouses’ circumstances.

How Do You Split Your Retirement in a Divorce Without a Tax Penalty?

When your divorce is finalized, you should get a Qualified Domestic Relations Order (QDRO) from the court. This document needs to be submitted to the retirement plan administrator to direct them to split up the account as agreed upon in the divorce. The QDRO also allows the account to be divided without the tax penalties that might otherwise accompany a withdrawal.

Get Help From an Experienced Attorney

Understanding how to divide your retirement in a divorce can be challenging, but it can be simplified when you have a knowledgeable attorney on your side who will advocate for your best interests. When you work with the experienced and skilled divorce attorneys at Goranson Bain Ausley, we’ll take the time to ensure that your assets are properly characterized, answer all of your questions about how retirement is split in a divorce so that you can make informed decisions about your case, and devise a strategy to help you find financial stability after the divorce.

At our client-centered Texas family law firm, we recognize the importance of safeguarding your financial future through these challenging times. Our divorce lawyers are dedicated to helping you navigate the division of retirement accounts with confidence and clarity. Contact us today to schedule a consultation and explore how we can support you in achieving a fair and equitable resolution to your divorce.

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