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TX high asset divorceIn a high asset divorce, one of the most critical issues is the division of retirement accounts. When one spouse earns a pension during the course of a marriage, it is considered community property. This means any such pension is subject to division as part of the overall divorce proceedings.

Austin Court: Divorce Invalidated Previous Designation of Ex-Spouse as TRS Pension Beneficiary

Pension plans require a covered employee to designate a “beneficiary,” who will receive any remaining pension benefits upon the employee's death. Typically when an employee gets divorced, the court will issue Qualified Domestic Relations Orders (QDROs), which instructs the pension plan administrator on how to divide any accounts or benefits. A QDRO also serves to override any prior beneficiary designation that conflicts with its terms.

Even without a QDRO, however, the divorce itself may automatically revoke a prior designation of a now-former spouse as beneficiary. A recent decision from a state appeals court in Austin, Jones v. Teacher Retirement System, provides a helpful illustration of this rule. In this case, a former employee of Texas Tech passed away in 2015. He had a pension with the Texas Retirement System (TRS).

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TX divorce lawyerWhile many divorcing couples go into the divorce process with the expectation that they may disagree on certain issues, such as who will retain the family home, many fail to remember that they will also need to determine how any retirement assets like 401(k) accounts will be divided. However, it’s important to take these types of unique assets into account when distributing assets, as they can play a crucial role in helping individuals become financially secure after their marriages are dissolved. For help understanding the complexities of dividing retirement accounts during your own divorce, please contact one of our dedicated Round Rock high asset divorce attorneys today.

Does the Account Qualify as Community Property?

How a 401(k) account is divided upon a couple’s divorce depends in large part on whether the funds in the account are characterized as community property or separate property. In most cases, 401(k) plans do not simply fall into one category or the other, as it is common for 401(k) plans to contain both types of property. This is because even if a 401(k) plan was started by one of the parties before a marriage took place, which would technically make it separate property, the interest in the plan that accrued during the course of the marriage will still qualify as community property, making it equitably divisible under Texas law.

Dividing the Account

Spouses who believe that they have a claim to the interest on a retirement plan will need to determine the amount of their share, which will be equal to the value of the plan at the time of the marriage (when it was considered separate property) minus the value of the plan at the time of divorce.

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TX divorce lawyerOne of the most common points of contention in any divorce is how a couple’s assets will be divided upon dissolution of their marriage. Although most couples understand that this will involve dividing relatively common assets, such as bank accounts, the family home, and vehicles, it’s important to remember that more unusual property, like retirement accounts, will also need to be divided. In most cases, at least some of the contents of a retirement account are considered marital property, which means that they must be divided equitably between the spouses. While this could mean that each spouse receives an equal share of the benefits, this is not always true, as courts are generally guided by what would qualify as equitable distribution when making their decisions.

Whether your retirement account pays out on a regular basis or you can withdraw as you see fit depends in large part on the type of account in question and the contents of your Qualified Domestic Relations Order (QDRO). To learn more about dividing your own retirement account upon divorce, please contact a member of our high asset divorce legal team today.

What Is a Qualified Domestic Relations Order?

QDROs, or Qualified Domestic Relations Orders, are court orders that lay out the ground rules for how a retirement account will be used following a divorce, including how its contents will be divided. These documents are necessary for most types of retirement accounts, including 401(k)s and IRAs and are used to verify a person’s right to receive a portion of the benefits paid out of a retirement account. Basically, this means that QDROs are used to name a former spouse as an alternate payee upon divorce, even if he or she didn’t actually participate in the plan.

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TX divorce lawyerDuring Texas divorces, a couple’s marital property is subject to division. In most cases, this means that divorcing spouses must grapple with who will retain a variety of assets ranging from houses and vehicles to financial assets, such as bank accounts and pensions. Of these types of assets, financial property is often the most difficult to divide. This is especially true for pensions, the status of which depends on when the pension was acquired and whether a pre-existing agreement is in place. For help determining whether your own pension qualifies as marital property and whether you can expect a portion of those payments upon divorce, please contact a member of our high asset divorce legal team today.

Community Property States

Texas is one of only nine community property jurisdictions, which means that almost all assets acquired by a couple during their marriage are considered to belong equally to both parties if they later decide to divorce. The assumption in most cases is that these assets will be divided 50/50 between the parties. This rule applies to physical property, such as real estate and personal possessions, as well as financial assets like retirement accounts and pensions.

Marital vs. Separate Property

In general, retirement assets earned during a marriage are treated as marital property, including:

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b2ap3_thumbnail_QDRO.jpgMany high asset divorces require the division of substantial retirement funds, which in Texas, usually involves the issuance of a Qualified Domestic Relations Order (QDRO). These orders, which are issued by a judge, essentially separate and transfer retirement plans between two parties. In fact, the issuance of a QDRO is often necessary before an employer’s pension plan administrator will even agree to divide a retirement account. QDROs contain valuable information, including how the account will be utilized going forward and how its contents will be divided. If you have retirement benefits that were at least partially accumulated during your marriage, you may need to divide those funds with your ex-spouse upon divorce. To learn more about this process, please contact an experienced high asset divorce attorney who can address your questions and concerns.

Dividing Retirement Funds

A party’s retirement funds are not always divisible upon divorce, as courts will usually only order equitable division if funds were accumulated during the marriage itself. Although it depends on the type of account, this means that the retirement funds will either pay out on a regular basis in the future or will be available for withdrawal at the parties’ discretion. It’s also important to note that the only funds that will be subject to division are those that accumulated during the marriage. Funds that accrued prior to the marriage will remain the sole property of the named participant.

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