When you decide to get a divorce in Houston, the law requires that a Texas family law court consider all property acquired during marriage as community property. The court divides community property between both of you no matter which spouse acquired it, including any and all retirement savings or investment plans. In many cases, these retirement accounts turn out to be the most valuable assets that the court considers in a divorce.
Consulting a Houston divorce lawyer is a good first step toward understanding how your retirement accounts apply to the divorce. There are many different kinds of investment plans that may qualify, including annuities, individual retirement accounts (IRAs), 401(k) and 403(b) accounts and pensions. All money accumulated in retirement accounts during the marriage is divided equally, regardless of the classification.
Differentiating between these complex retirement instruments is important because you must calculate the value of the investment. Present value is important, but because these accounts may not pay out for years or decades, the potential value of the investment is just as key. Knowing how much the retirement accounts will be worth allows a Houston divorce attorney to advise you if you are seeking a settlement.
A good first step is to determine whether you are dealing with a defined contribution plan or a defined benefit plan. Defined contribution plans require you, your employer or both of you to contribute a set amount of money every year. The benefits pay out in proportion to the amount that goes into your account. Defined benefit plans, on the other hand, require employers to pay you a certain amount of money based on a formula. The benefits pay out based on factors such as past earnings and length of service.
One way that family law courts approach the division of retirement accounts is through a qualified domestic relations order (QDRO). QDROs allow you to change the payout for your investment plans. Without one in place, the spouse’s employer has no legal obligation to direct payment to anyone but the owner of the plan. QDROs are beneficial because they incur no early withdrawal fees from the IRS. Without a QDRO, however, the transfer of money from a retirement account can incur stiff penalties. More importantly, the QDRO defines what percentage of the total savings amount you are entitled to receive, a number that will be important to any settlement or division actions. Each QDRO must conform to specific rules set by the administrator of the plan, so you need a separate QDRO for each plan to be divided or transferred.
Assessing how your retirement or investment accounts will fare in a Texas divorce, can be a daunting process. Contacting a Houston divorce attorney can help clarify the valuation and splitting of investments to ensure you receive all the marital property to which you are entitled.