Your retirement benefits may be one of the last things on your mind when going through a divorce. But they are valuable and can ensure your financial security when you’re older. You want to make sure that you receive your fair share of your and your spouse’s retirement benefits. You need to be concerned with how you and your spouse will divide retirement accounts in Texas.
It’s important to understand the overall ideas of the rules and regulations about dividing your retirement accounts. Making better decisions now, during the divorce, will help your future.
How to Determine What Assets are Community Property
Texas is a community property state. According to Texas family law, any property you earn during the marriage is equally owned by you and your spouse. And it will be equally divided. Of course, there are always exceptions, but typically the split will be 50/50.
Retirement accounts are marital assets, and you must divide them as such. While this sounds easy, there are different rules for different types of retirement accounts.
But first, you must answer some critical questions.
- When were the retirement accounts started?
- What types of retirement accounts (401k, IRA, pension) do you have?
- What is the value of the retirement accounts?
If you do not know the answers to these questions, your Texas divorce attorney may hire a financial accountant. They will help you and your attorney determine the total of each account.
What are the Different Retirement Accounts?
We will look at three different types of retirement accounts:
- A Defined Contribution Plan is when the employee, employer, or both contribute to the retirement account. The prime example of this is a 401(k) retirement account.
- A Defined Benefit Plan is a company retirement plan that pays employees based on years of work and salary history. One example of this is a pension.
- An IRA (Individual Retirement Account) allows individuals to save for retirement tax-free or pay taxes later. This can include CDs and money market funds.
You know all the types of retirement plans you and your spouse have. The next step is to figure out the value of each. Finding the value of a 401(k) or an IRA is relatively easy. It is simply the amount of money in the account on a specific date. But finding the value of a pension can be tricky. A formula figures the money by looking at the salary and years of work.
Once you have determined the value of each retirement account, the next step is to divide them.
How to Divide Retirement Accounts in Texas
Now that the judge knows the amount of each retirement account, they can decide how to divide them. There are two methods you can use to divide retirement accounts in Texas:
- Immediate Offset Method – This considers the current value of the retirement account and compares it to other marital assets. Let’s say that the spouse who earned this retirement account wants to keep their money. Instead of sharing, they are willing to give up the house or other assets. In this way, you determine the split now and not when retirement begins.
- Defined Distribution Method – This is when the accounts are divided, and you both will receive a portion when you retire. Other assets, such as the house, are treated separately.
You now know the value of all retirement accounts and how you must divide them. The judge will issue the final divorce decree and spell out how to split the plans.
The benefits you made before and after the marriage will stay with you. You will not have to share these with your ex. Since Texas is a community property state, you will only divide the money earned while you were married.
Also, according to the National Council of Juvenile and Family Court Judges, your social security cannot be divided due to a divorce. Social Security is a federal program. And getting a divorce means you don’t have to give up any of that money you earned.
Working with Your Texas Divorce Attorney
You should consult with your Texas divorce attorney when deciding how to divide your retirement plan in Texas. They will discuss your options to protect yourself now and in the future.