Texas law gives courts the right to divide retirement benefits between divorcing spouses. Because the state requires fair property division, most assets acquired during the marriage, including retirement investments, constitute community property.
Review the factors that determine how a couple will divide pensions, 401(k) plans, IRAs, and other retirement accounts in a divorce in Texas.
Division formula
To calculate the retirement benefit division, Texas courts use a standard calculation. The judge reviews the value of each person’s retirement benefits and determines the amount that belongs to both spouses. Generally, the amount a person contributes to the account before marriage constitutes separate property, but the interest accrued on that amount and additional contributions during the marriage constitute community property. Then, the court determines a fair percentage of the accounts to award each spouse.
The role of a QDRO
When the court decides to give one spouse a share of the other spouse’s retirement investments, the judge will issue a qualified domestic relations order. This legally binding court order requires the administrator of the retirement plan to transfer the designated percentage to the noncontributing spouse. The QRDO will indicate the amount, how the court calculated this amount, and the schedule for payment.
Alternative options
When both spouses have their own retirement accounts, they can agree to each keep their own savings. If only one spouse has retirement savings, the other spouse can decide to pay out the cash value of his or her share rather than seeking a QDRO. In lieu of cash, the spouse who has retirement savings can give the other spouse real estate or other assets in exchange for his or her fair share of those accounts.
When one spouse files for divorce, both spouses must provide the court with a full accounting of assets, including retirement accounts. In addition, Texas law prohibits divorcing individuals from withdrawing funds from retirement accounts during their divorce proceedings. Failure to disclose retirement accounts or other assets can result in legal sanctions.