Updated on August 23, 2022
When you think about the equitable distribution of your marital property upon divorce, you likely think about your home, stocks and bonds, vehicles, bank accounts, and other such assets. It is important to keep in mind, however, that your and your spouse’s retirement accounts are also likely to be factored in.
Retirement accounts are one of the most valuable assets in a divorce. For this reason, if you are going through a divorce, you may wonder, “Is my spouse entitled to my retirement benefits?”
Many people fear losing their retirement savings, especially if the divorce occurs when nearing their retirement age. Thus, if you are considering a divorce or are already going through one, you need to understand how retirement benefits are divided in a Texas divorce.
Consult with a Gatesville divorce attorney to determine if your spouse is entitled to your pension in a divorce.
What Are Retirement Benefits in a Texas Divorce?
Before we explain how retirement accounts are divided in a divorce, it is vital to understand the different types of retirement benefits. Retirement benefits include the following accounts:
Individual Retirement Accounts (IRAs)
Deferred compensation accounts
Retirement benefits also include other types of retirement plans. Consider speaking with a knowledgeable Gatesville divorce attorney in Texas to identify all types of retirement benefits that may be split during your divorce.
How Are Assets Divided in a Texas Divorce?
To understand how your retirement benefits may be divided upon divorce, you need to know how the property division process works in Texas.
Texas is a community property state (Texas Family Code § 3.002). For the purpose of division of property, a divorcing couple’s property is characterized as either community or separate property.
Community property is any property acquired by both spouses during the marriage, while separate property includes the following assets:
Any property owned and purchased by an individual spouse before the marriage
Any property received by either spouse as a gift or inheritance before or during the marriage
Personal injury settlements and verdicts received by an individual spouse during the marriage, except for compensation for the loss of consortium recovered by their spouse and the loss of earning capacity
In a Texas divorce, your marital property will be divided in a manner that is deemed just and right, which is tantamount to a manner that is fair under the given circumstances. This just and right division, however, does not necessarily mean that your marital property will be divided right down the middle.
In addition, separate property is often commingled—or, in other words, mixed—with community property. When this happens, a spouse’s separate property loses its “separate status.” Retirement accounts often fall into this category, which can complicate the matter considerably.
Is My Retirement Plan Marital or Separate Property?
If you or your spouse entered your marriage with a retirement account in tow, it is separate property. However, the thing about retirement accounts is that they tend to grow in value. The amount that the retirement account increases in value from the time of your marriage to the time of your divorce will likely be considered marital property—to be divided in your divorce.
In other words, the value in any retirement benefits that you bring into your marriage remains your personal property, but any value that accrues once you are married becomes marital property.
Your retirement accounts reflect your wise choices, savvy investments, and financial discipline, and they can become quite substantial over the course of a marriage. If you are still many years from retirement when you divorce, it is easy to lose sight of the value of your retirement plan, which makes it easier to inadvertently lose benefits in your divorce.
On the flip side, if your spouse’s retirement has grown considerably over the course of your marriage, it represents marital assets that you are also entitled to in divorce. Contact a divorce attorney to discuss your retirement situation and see what benefits you can lay claim to.
Can My Spouse Obtain My Retirement Benefits upon Divorce?
Whether or not your spouse can obtain your retirement benefits depends on when you started making contributions to your retirement accounts. Any contributions made before the marriage are your separate property, while any contributions made after the marriage are considered community property.
In many cases, retirement accounts consist of both separate and community property. However, as you can imagine, it can be difficult to make a distinction between the two types of property.
Can I Cash Out My Retirement Benefits Upon Divorce?
In many Texas counties, a standing order is automatically put in place when either spouse files for divorce. The order prohibits both spouses from cashing out from their retirement accounts.
If your county does not impose a mandatory standing order, your spouse may request a Temporary Restraining Order when filing for divorce to prevent you from withdrawing funds from your retirement savings plans.
Any spouse who violates the standing or Temporary Restraining Order can be held in contempt of court. You can avoid this serious consequence by working closely with an experienced Gatesville divorce attorney, who will help you avoid common divorce pitfalls like this. Contact a lawyer today to get the legal guidance you need.
Does It Matter How Long We’ve Been Married?
The length of your marriage may matter when dividing certain types of retirement accounts upon divorce. However, many retirement plans, including 401(k), can be divided between you and your spouse regardless of how long you have been married.
The eligibility for retirement benefits depends on the type of the savings plan. Let’s take a look at Social Security spousal benefits and military retirement benefits:
Social Security Spousal Benefits
Your spouse is entitled to your Social Security spousal benefits if you have been married for at least 10 years and meet other eligibility requirements. The amount of spousal benefits are based on your and your spouse’s work histories.
Military Retirement Benefits
The division of military retirement benefits are based on how long you or your spouse served in the Armed Forces during your marriage.
How Can I Determine If My Spouse Has Retirement?
If you are not sure if your spouse has retirement accounts, you can check his or her pay stubs or earning statements to check for contributions to employer-based retirement programs. Your spouse’s 401(k) and other retirement accounts also send statements by mail shortly before the tax filing date.
If you think your spouse may be hiding assets, speak with a Gatesville divorce attorney right away. He or she will be instrumental in protecting your financial rights and future. Contact a divorce lawyer to learn more.
What Are QDROs?
If your divorce involves the division of a 401(k) or another kind of pension, you will need to use a Qualified Domestic Relations Order (QDRO). This is a legal tool that allows one spouse’s pension to be divided between both divorcing spouses without incurring immense early withdrawal penalties in the form of fees and taxes.
You and your spouse will both be identified on the QDRO as one of the following parties:
The saver, meaning the person who earned the retirement benefits as part of his or her employment
The alternate payee, meaning the person who stands to receive a portion of the saver’s benefits
QDROs are highly technical, and if your division of marital property is leading in this direction, you will need the professional legal counsel of an experienced Gatesville divorce attorney on your side.
Not every type of retirement account requires that you go through the legal process of a QDRO. Both traditional retirement accounts and IRAs can be divided between divorcing couples without the necessity of a QDRO, but early withdrawal penalties may apply.
Because you do not want to lose a hefty percentage of your marital property to taxes, it is critical that you carefully explore all your options with a Gatesville family law attorney who has considerable experience in the division of complicated assets.
How Can I Keep My Retirement Benefits During a Texas Divorce?
Since retirement accounts are usually the couple’s most valuable asset, many spouses want to keep their benefits during a divorce proceeding. There are several options to keep your retirement assets upon divorce:
Often, divorcing couples come to an agreement that each of them will keep their own retirement benefits and avoid dividing them.
Another option to keep your retirement benefits is by giving your spouse other assets in exchange for the retirement benefits of the same value. The retirement account can stay with the spouse whose name is on it, while the other spouse receives another property or asset that offsets his or her percentage of ownership in the retirement account.
Here’s how it works. Let’s say that you have accumulated $10,000 of retirement benefits on one of your savings plans during the marriage. Your automobile is also worth $10,000. You exchange your share of the vehicle - $5,000—for your spouse’s share of your retirement account, which is also $5,000.
If the retirement account can be liquidated without considerable financial loss, the divorcing couple can go this route. Each person will simply take his or her share of the proceeds.
Buying Out Your Spouse’s Share
If liquidation is not feasible, which it often is not, and there is not another asset large enough to offset the retirement account’s value, the spouse whose name is on the account can buy out the other spouse’s percentage of ownership, either over time or by retaining a loan and paying it off directly.
There are important tax implications when it comes to retirement accounts and divorce that also must be taken into careful consideration.
Every divorce is unique to the couple and the circumstances involved, but hammering out a division of retirement assets that bypasses financial penalties and that maximizes your return can help secure your financial future. It is best to consult with a skilled Gatesville divorce attorney to help you protect your assets, including retirement accounts, during a Texas divorce
What about Taxation?
If you are years from retirement age and receive a portion of your ex's retirement benefits during your divorce, you will not be taxed or otherwise penalized. This is true regardless of your ex's age. Any retirement benefits that either of you brought into the marriage, however, remain that spouse's alone.
Any earnings that accrued on either of your benefits during your marriage are considered community property in the State of Texas and must be divided in a manner that is deemed just and right. You can, however, lose out on benefits owed to you if you fail to recognize their value during your divorce.
Contact a Gatesville Divorce Attorney for a Free Consultation
Every divorce is unique, but if you or your spouse has been growing retirement benefits over the course of your marriage, this fact should not be overlooked in your divorce. Attorney Brett Pritchard at The Law Office of Brett H. Pritchard in Killeen, Texas, has the experience necessary to help ensure that you receive what is rightfully yours in your divorce.
Schedule a FREE initial consultation with our Gatesville divorce lawyers at The Law Office of Brett H. Pritchard to determine if your spouse is entitled to your retirement benefits and to help you protect your assets. Contact us online or call us at (254) 781-4222 today.