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Retirement accounts often divided in divorce

For people in Texas considering a divorce, the financial aspects of the end of a marriage can be complex and challenging. Retirement funds are often some of the largest and most important assets of a couple divided in a divorce settlement, and given the importance of these funds to the financial future of the spouses, they require additional attention. Different types of accounts can be governed by varying rules for division in divorce.

Retirement accounts can be contentious issues in a divorce. When the sum of money is significant, this can especially hold true. If a retirement account division is not handled properly in the divorce, it is easy for the divorcing spouses to be hit with penalties and taxes. An improper division could also lead to an inequitable outcome.

For a retirement plan based in one spouse's workplace, a division requires a court order called a qualified domestic relations order or QDRO; the same is true of a 401(k) or a pension. This order is not included in the divorce decree although it is based on the agreement. If multiple retirement accounts are being divided, each requires a separate QDRO to complete the process.

In addition, people receiving 401(k) funds in a division should not agree to have the beneficiary changed until the divorce is finalized. Allowing a beneficiary change before the division of the fund could leave a former spouse out in the cold if the account holder suddenly passes away.

The QDRO should be drafted by an attorney, often the family law attorney representing one spouse during a high asset divorce, and the document must be approved by the court. The lawyer may assist their client in understanding the details of retirement account division and work with the plan administrator to ensure that it is effectuated clearly and swiftly.

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