Retirement accounts, such as pensions, 401(k)s, etc., are considered assets under Texas law and are subject to the property division process in a divorce. However, not all retirement accounts are treated the same, and there are different rules and factors that determine how they are divided.
Community property versus separate property
Under Texas’ community property laws, all assets acquired by either spouse during the marriage is jointly owned by both spouses, and therefore must be divided in divorce. This includes any contributions made to retirement accounts during the marriage, regardless of whose name is on the account or which spouse earned the income. Therefore, any retirement account that has both premarital and marital contributions is considered to have both separate and community property.
Separate and community property in retirement accounts
To determine the community property portion of a retirement account, the court will use a formula called the, “time rule,” which calculates the ratio of the number of months of marriage during which contributions were made to the account over the total number of months of contributions to the account. For example, if you made 401(k) contributions for 10 years before marriage, then, you were married for another 20 years where you made additional contributions, 20/30 or 66.67% of the account balance is community property, subject to division.
Division of retirement accounts
Once the community property portion of the retirement accounts are determined, the family law judge then decides how to divide it between the spouses. However, the judge is not required to split the retirement accounts evenly. Instead, judges divide it in a manner that is “just and right.”
A just and right determination is based on various factors. This includes how long the marriage lasted, you and your soon-to-be ex-spouse’s health and age and both of your earning capacity. The judge also looks at how each of you contributed to marriage and the retirement accounts themselves, the needs of each spouse and any children and the tax consequences of the division.
Finally, the judge is free to look at any other relevant circumstances. This also includes any fault-based grounds for divorce, such as adultery or cruelty.