How Retirement Benefits are Divided During Divorce?
Divorce proceedings are hard enough, but going through your finances can easily add to your stress and anxiety. One of the common properties that spouses tend to have is retirement benefits.
Retirement benefits are considered as property in Texas; therefore, it can be subject to a “just and right” division by the courts. It is considered as indirect compensation to a spouse and classified as income earned by the spouse during the marriage.
Under Texas laws, contributions made to a retirement plan during the marriage are considered community property in Texas courts. And because it is regarded as community property, it can be subject to division in a divorce proceeding.
A retirement plan is wherein an employee will receive benefits once the employee reaches retirement age. If an employee decides to leave the company before he retires, the company returns the employee’s contributions and forfeits any company’s contributions.
If the spouse made the contributions before marriage, then the retirement benefits are considered separate property. If the spouse made the contributions after the marriage, it is part of the spouses’ community property.
What are the many different types of retirement benefit plans?
A Defined Benefit Plan is a retirement plan that is based on a person’s specified monthly income. It is, however, dependent on the contents located in a particular account.
Military Reservist’s Retirement is based on a point system calculated on the number of months served. If the military service of the spouse started before the marriage, the points are considered separate property. The only points that will be regarded as part of the community property are acquired during the marriage.
If the spouse is not yet retired at the time of the divorce, what will be included would only be the retirement benefit that was acquired during the marriage. In some cases, the employee spouse usually opts to pay the non-employee spouse to keep the retirement benefits in the employee spouse’s name.
One of the things that you need to keep in mind is that the court would value the retirement plan at the time of the divorce and not the value of the actual retirement benefit. You should also take into account the value of the retirement plan would no longer be part of the community property after the divorce.
Also, if, at any time, during the marriage, the spouses move from state to state, the Texas courts would interpret the retirement benefits based on the laws of the residence of the spouses at the time the benefit was accrued. If you happen to live in a common-law state, retirement plans will be considered separate property and will not be subjected to the “just and right” division.