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Dividing retirement accounts during a divorce

When people in Texas decide to divorce, they may face a difficult period not only on an emotional level, but also on financial and practical levels. Ending a marriage is also a complex legal process, especially when it is a high-asset divorce involving the division of extensive marital property. Retirement funds often comprise a married couple's largest assets. They can often exceed even the value of the marital home. In most cases, at least a large portion of a 401(k) or another retirement fund will generally be considered marital property.

There are some exceptions, however. For example, if the spouses signed a prenuptial agreement, taking their respective retirement accounts off the table, the divorce can proceed in light of the prenup. In Texas, a community property state, even accounts that were established before the marriage may consist of a mixture of community and separate property. While the 401(k) as a whole may not be subject to division, the amount by which it grew during the marriage almost always is. People in longer marriages can expect to share greater portions of their retirement funds with their former spouses.

In order to successfully complete the division of a 401(k) after the divorce decree has been issued, a special kind of court order is needed. Taking money out of this type of qualified retirement fund comes with significant tax penalties unless it is done to divide the account in accordance with a Qualified Domestic Relations Order (QDRO). This allows both parties to avoid additional penalties during the division.

Navigating the property division process can be a challenge, especially for people going through a high-asset divorce. A family law attorney may help a divorcing spouse advocate for his or her rights and secure a fair settlement.

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