When couples go through the process of divorce, they typically have significant concerns about their financial future.  The breakup of a marriage may mean less household income available to each spouse, higher expenses associated with dual households and less value in marital assets available to each party.  The resolution of these monetary issues can have a substantial impact on the ability of a party to a divorce to start over with a firm financial foundation to build upon.  The division of the retirement assets often will constitute the most valuable marital assets of a married couple so it is extremely important to understand how retirement accounts like 401K plans, individual retirement accounts (IRAs), pensions and annuities are handled in divorce.

Regardless of which spouse’s name is on the retirement account, it will be a marital asset subject to community property distribution under Texas family law.  Even if contributions to the retirement account began prior to marriage, contributions made during the marriage and any appreciation in value resulting from such contributions will be community property.  It is important to have legal advice when dealing with the division of a retirement account because depending on the type of retirement asset, specific federal and state laws may impact the plan.  Whether a retirement account is a defined benefit plan or defined contribution plan will determine the present value or potential value of the retirement asset.  Tax consequences must also be considered because the timing of tax consequences may impact the spouse’s differently if a substantial disparity in income exists between the parties.

One of the biggest mistakes made by parties who try to handle their own divorce is the failure to prepare a qualified domestic relations order (QDRO).  This is the primary tool used in marital dissolutions to ensure that the retirement plan is divided appropriately and that the spouse of the named beneficiary actually receives their share of the retirement plan funds.  Even if the divorce judgment specifically divides the retirement between the parties, the administrator of the retirement plan will typically pay all of the proceeds of the plan to the named beneficiary if no QDRO is served on the plan administrator.

While a party may have recourse against the beneficiary spouse if the named beneficiary receives the entire retirement because no QDRO was filed, this can be a difficult and expensive course for obtaining one’s share of the retirement plan.  QDROs have the additional benefit of avoiding adverse tax consequences that might accrue from early withdrawal or transfer of funds from certain retirement accounts.

Although QDROs often are indispensable tools for dividing a retirement account during a Texas divorce, they must be drafted according to very specific rules that are promulgated by the plan administrator so it is important to seek legal representation to ensure that your rights are not compromised.  Texas divorce attorney Alex Tyra offers a free consultation during which he can advise you about division of retirement plans and QDROs.  We invite you to contact us in our Longview office at 903-753-7499 or visit our website and submit a case contact form.