It is quite common for people to worry about their finances during divorce proceedings. Unless they already have an agreement in place, spouses frequently have questions about their finances. They worry about support obligations and the impact that community property rules may have on their largest assets.
Divorcing spouses often have to share home equity and the funds in their bank accounts. Some couples also have retirement savings to address. Perhaps one spouse accrued pension benefits through long-term employment with a specific company. Either spouse could have a personal retirement savings account, such as a 401(k), where they have set aside a portion of their income for years.
Do couples typically need to divide their retirement savings as community property in a Texas divorce?
Accounts may be subject to division
Spouses sometimes make the mistake of assuming that retirement savings are separate property. They may reach that conclusion specifically because the account is in the name of just one spouse. When determining the extent of the marital estate for property division purposes, the name on ownership documents is not the most important factor.
Instead, it is the use of marital income to acquire or maintain resources that may make it subject to division under community property rules. People who have made deposits into their retirement savings accounts or accrued pension benefits during the marriage likely have to report those resources as marital property. They are then part of the estate for the purposes of community property distribution.
Retirement accounts and pensions may require a careful evaluation to determine what portion of the balance is marital and what contributions are separate because they occurred prior to the marriage or after legal separation. From there, spouses may have to discuss different solutions for sharing those funds.
They could agree to split the account and have a lawyer draft a qualified domestic relations order (QDRO) to avoid taxes and penalties. They could use the balance of the account to influence other decisions about property division.
Other high-value assets can help balance out the retention of retirement savings. Spousal maintenance or alimony can also be a tool to help people address pensions and retirement savings in a fair manner. Much of the time, the funds that people have set aside for their golden years are subject to division when they decide to divorce.
Discussing property division concerns and other issues with a skilled legal team can help people prepare for the challenges of their upcoming divorce proceedings. People who set clear priorities, such as preserving their retirement savings, may find it easier to focus their efforts on achieving those goals during property division negotiations.