Why You Need a QDRO for Retirement Assets in a Texas High Asset Divorce

 Posted on December 16, 2019 in QDROs, Pensions and 401(k)s

When you are planning for a high asset divorce in Austin, Texas and know that your retirement accounts will be classified as community property and subject to division under Texas law, you will need to have a plan in place to divide those retirement benefits. For wealthy couples anticipating a high asset divorce, the amount of money in retirement accounts can be substantial. Using a Qualified Domestic Relations Order (QDRO) to transfer retirement benefits as part of your divorce could end up saving tens of thousands of dollars (or even more depending upon the amount of money in your retirement accounts and the amount that needs to be distributed to your spouse).

We want to tell you more about QDROs and how they work, and to provide you with examples that demonstrate the importance of having a QDRO in a high net worth divorce. An Austin high asset divorce lawyer is here to assist you.

What Is a Qualified Domestic Relations Order in a High Asset Divorce?

What is a QDRO? The Employees Retirement System of Texas (ERS) explains that a QDRO is a legal order subsequent to a divorce or legal separation that splits and changes ownership of a retirement plan to give the divorced spouse his or her share of the assets. In order to qualify for a QDRO, the ERS’ General Counsel must receive a certified copy of the divorce decree, and the ERS’ General Counsel must review and approve the QDRO.

While QDROs are essential for dividing retirement benefits for state employees, QDROs can also be used to distribute retirement benefits from private employment and contributions, including Individual Retirement Accounts (IRAs). You may have a variety of retirement account types, including traditional IRAs or Roth IRAs that you opened, or SEP IRAs or SIMPLE IRAs if you own your own business. Defined-contribution retirement accounts like 401(k), 403(b), or 457 accounts can also be divided with a QDRO. Wealthy individuals in Austin, TX also may have a cash balance pension plan, which is a personal pension for high earners looking to sock away a large amount of money pre-tax.

Why would you want to use a QDRO? In short, a QDRO allows you to take assets out of a retirement account early without paying a penalty. Further, if you simply transfer the assets into a retirement account for your spouse, neither party will be required to pay tax on the amount, either. Otherwise, without a QDRO, early withdrawals from retirement accounts result in a 10 percent penalty.

Consequences of Early Withdrawal from Retirement Accounts for Wealthy Parties Without QDROs

If you did not have a QDRO, you could pay a significant amount of money in penalties. For example, if the court determines that your spouse is entitled to $500,000 in retirement account benefits that are currently in your name (but are community property and thus distributable in your divorce), the 10 percent penalty would total $50,000. Even if you enter into a negotiation with your spouse that involves a transfer of fewer retirement assets, the penalty could still cost you tens of thousands of dollars.

A QDRO could save you tens of thousands of dollars—and often even more—when transferring retirement benefits in a high asset divorce in Austin.

Contact a High Asset Divorce Attorney in Austin, TX

If you have questions about transferring a substantial amount of retirement assets in your Austin, Texas high asset divorce, an experienced Austin high net worth divorce attorney can help. Contact Powers and Kerr, PLLC online or by phone at 512-610-6199 for more information about dividing retirement assets in your divorce.

Sources:

https://statutes.capitol.texas.gov/Docs/FA/htm/FA.6.htm

https://www.forbes.com/sites/davidrae/2018/07/23/10-retirement-accounts-you-should-know-about/#74e5d0de2084