Denton County Property & Asset Division Attorneys

Valuing and Dividing Retirement Accounts in Texas

In Texas, like many other states, retirement accounts are typically considered community property subject to division when a marriage ends. This includes retirement accounts like 401(k)s, IRAs, and pensions that were funded or earned during the marriage.

The first step in dividing retirement accounts is determining their value. The value is often calculated at the date of marriage and the date of divorce, and the increase during the marriage is considered community property. Accurate valuation may require the assistance of financial experts, such as actuaries or financial advisors, to ensure fairness.

To divide a retirement account, including pensions, a Qualified Domestic Relations Order (QDRO) is essential. This court order outlines how the retirement plan should be divided between the spouses. A QDRO must be approved by the plan administrator and the court to ensure that it complies with federal and state regulations.

It's crucial to consider the tax implications of dividing retirement accounts. Transferring retirement assets between spouses through a divorce is typically a non-taxable event. However, taxes may apply when funds are withdrawn or distributed later on, depending on the type of account and the circumstances.

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 to 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/postnuptial agreements – Marital agreements, including prenuptial or postnuptial 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.