When a couple with high-value assets decides to divorce, each spouse has a lot to lose. Often one of the primary considerations is how the end of the marriage will affect retirement plans.
In Texas, as in other states, retirement plans tend to be part of the marital estate. If you or your spouse contributed to the plan during the course of the marriage, then the interest in the plan during that time is subject to property division. That is, unless a prenuptial agreement between the spouses states otherwise.
Note: if you or your spouse contributed to a 401(k), IRA or pension prior to the marriage, then the value of the plan on the marriage date may be regarded as separate property that is not divisible in divorce.
Is it necessary to divide the retirement plan in order to reach a fair division of assets? Or can other arrangements be made?
While many divorcing spouses decide on an even split of community property, not every marital asset has to be divided in divorce. A full inventory and valuation of community property is needed to determine whether retirement savings should be split, or whether one spouse should keep other assets in order to balance the equation.
For example, are there professional practices, commercial properties, vacation homes, stocks or other investments that might offset the value of a retirement plan, making division of the plan unnecessary? In any case, it is important to seek guidance from a property division attorney who understands your portfolio and how to maximize your post-divorce assets.
When dividing the retirement plan is the right decision, a Qualified Domestic Relations Order can be used to designate an alternate payee.
With a QDRO, the spouse who did not participate in the plan can be assigned the right to receive all or a portion of the plan benefits. If your spouse contributed to retirement savings while you worked in the home or for an employer that didn't provide a retirement plan, then use of a QDRO to establish your right to assets may be the right move.
Note, however, that early withdrawal from the plan will have significant tax implications, so if you need money in the short term, then you may want to consider drawing from martial assets other than the retirement plan.
You've worked hard to plan for the future. Take action now to preserve your retirement assets.
In general, Americans are living longer now than ever before, so it is crucial to have a comprehensive plan that protects your assets and preserves your retirement dreams. Don't let divorce threaten your future comfort and peace of mind; discuss your situation and goals with a knowledgeable family law attorney.