Retirement Accounts, Property Division & Divorce: What You Need to Know

The division of property and debts is a critical component of any divorce. This division includes the obvious items to be divided, such as a family home, vehicles, and other shared physical assets. However, anyone beginning the divorce process should keep in mind that other non-physical assets, such as equity earned in a pension, 401(k), or IRA are also subject to property division. Aside from real estate and unique assets such as professional practices and family businesses, retirement plans and pensions are often the largest assets to be divided in a divorce. Even when spouses agree and are part of a relatively amicable divorce, dividing retirement assets can be a challenging process involving complex calculations and procedures.

In order to understand the specific laws regarding retirement accounts, property division, and divorce, it is important to know how Texas law defines community property and the division of assets:

  • Community property – With few exceptions, including inheritances and gifts, Texas considers assets and debts acquired during the course of a marriage as community property subject to division in a divorce. The goal of a Texas court is to come up with a just and right division of the property, rather than strictly equal one; though that is often the result. In determining what is a just and right division of the property a court will consider the unique facts inherent to each case, such as the earning capacity of each spouse and the needs of any children of the marriage.
  • Separate property – While it is a Texas court’s responsibility to divide community property the court generally has no ability to divest a spouse from their separate property. Determining which assets and debts are defined as community or separate property prior to division is critical. This determination can become complicated when you are dealing with income earning property, such as a retirement fund. For example, while your retirement benefits earned prior to marriage are separate property, the amount the plan earns during a marriage is community property subject to division.

As with many other issues inherent to divorce, such as child custody arrangements, spouses have the opportunity to divide retirement accounts through communication, compromise, and mutual agreement. The alternative is division by court order, which Texas law requires to be “just and right”, and may not be what either party wanted.

Retirement Accounts and Varying Circumstances

When it comes to property division, determining how to divide retirement accounts is often an important and complex issue to address. That’s due in part to the fact that there are a number of issues that make the process a case-by-case matter, such as:

  • Different rules and procedures – Retirement account division is subject to complicated procedural rules and calculations, which can also vary depending on the type of pension or retirement system involved. For example, federal pensions are subject to different rules and guidelines than those used by local or state governments, the military, large corporations, and other retirement systems.
  • Terms of a plan – Certain retirement accounts, such as a 401(k), may have unique and specific terms when it comes what is allowed and what is not. For example, some terms may allow funds to be distributed at the time of divorce (with tax penalties), and others may require the plan holder to retire before distribution.
  • Prenuptial/post-nuptial agreements – Martial agreements, including prenuptial or post-nuptial agreements, if spouses have one, may impact which assets are to be included in a marital estate during divorce. That may include pensions and retirement accounts.
  • Both spouses have a retirement account – When both parties in a divorce have their own respective retirement accounts, Texas courts often choose to award each spouse their own account, if they are nearly equal in value, or use other assets to offset the difference. In these situations it is important to know and be able to prove the real present value of an account because a pension and a 401(k) may have similar cash values, but very different values in the long term.
  • Disproportionate division – Because property division is not necessarily equal, division of retirement accounts can be disproportionate. As mentioned above, this may happen when both spouses have retirement accounts of different values, but also when other factors are involved, such as custody of any children, divisible debts, unequal earning capacity, and separate property estates.
  • Military retirement – Military retirement benefits, when held by one or both spouses, can make for added challenges in a divorce. Federal regulations[MY1] such as the SCRA (Service Members Civil Relief Act), as well as survivor benefit plans, military occupational specialties, and defense finance and accounting services must all be addressed by attorneys with experience representing service men and women in divorce.

QDRO: Qualified Domestic Relations Order

In cases involving property division and retirement accounts, there is an additional step needed to partition and re-allocate retirement benefits. This step uses the Qualified Domestic Relations Order (QDRO) as the primary tool to establish a court order that specifies distribution terms to a retirement plan’s administrator. QRDOs allow for:

  • Avoidance of tax penalties for early withdrawal, and
  • Creation of separate accounts for recipients when a retirement plan is in one spouse’s name.

QRDOs must be drafted and often pre-approved by the plan’s administrator, and generally use the value of a plan on the date a divorce is finalized to calculate the non-plan holder spouse’s share. This calculation also takes the length of a marriage into consideration. Whether the share is to be distributed upon divorce or later on upon retirement, it is it is critical to work with attorneys who can not only construct QRDOs in accordance to applicable laws, unique factors, and the terms of a plan, but also in a manner that ensures your right to a just and fair share is protected.[MY2]

Comprehensive Representation for Property Division & Divorce

Dividing retirement accounts or any assets and property is one of the most important aspects of a divorce, and a factor that must be addressed effectively prior to finalizing any divorce decree. By working with experienced attorneys who can help you navigate the complexities of defining community property, valuing retirement plans, and addressing unique issues during these matters, you put yourself in position to better protect your interests.

The division of your marital property can have a significant impact on your future. Take the right steps from the very beginning by placing your trust in a proven Texas family law firm. CokerLegal has been serving clients throughout Denton County, Collin County, and the surrounding areas of Texas since 1998. We are prepared to leverage our extensive experience to provide the comprehensive representation you need. If you wish to discuss a divorce case and / or property division matter with a member of our team, call (940) 293-2313 to request an initial consultation, or contact us online.


[MY2]Not sure if we should include this sentence as we NEVER do our own QDROs and always send them out to a specialist.

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