Decatur Family Law and Probate Attorney

How might divorce affect my retirement plan?

On Behalf of | May 16, 2022 | Uncategorized

Retirement plans have for many decades now been a common benefit employers offer their employees.

Many Wise County residents from different walks of life and lines of work will have some sort of retirement plan.

While these are often 401(k)s or other plans with a set dollar amount, a few people may have pension plans. Pensions are relatively common among government employees and those who work in unionized positions.

Like other property, retirement plans are subject to Texas’s community property rules during a divorce. For a 401(k), for example, any contribution that a divorcing spouse made to the plan prior to marriage is that spouse’s separate property.

On the other hand, contributions made during the marriage are community property and subject to division during a divorce proceeding.

Dividing a retirement plan can be difficult and possibly cause conflict

A judge will divide a retirement plan after considering a number of factors. The outcome may vary from case to case since a lot depends on a couple’s unique circumstances.

One issue spouses might face is whether all or part of a retirement plan is separate property.

If a retirement plan is a pension; determining the value of that pension in today’s dollars may require a financial expert and may involve some dispute between the spouses.

Deciding how to divide a retirement plan may also involve litigation or intense negotiations. For example, the person who legally owns the plan may wish to try to keep it by exchanging other property or agreeing to a buyout.

In other cases, the couple may agree to execute a Qualified Domestic Relations Order, or QDRO, so that the administrator of the plan may legally divide a retirement plan without adverse tax consequences. As they are legally binding orders, it is important that the parties prepare a QDRO correctly and promptly.