Dividing up retirement accounts is one of the more challenging parts of a Texas divorce that divorce lawyers work with their clients to resolve.
401(k) accounts are a part of a person’s or couple’s retirement income and fall under the community property law observed in Texas, meaning that divorce attorneys must help divorcing couples split that money appropriately.
It is not as easy as it sounds and dividing a 401(k) must be done correctly to avoid either spouse ending up with tax penalties as a result.
401(k) Accounts Are Community Property In A Divorce
Since Texas is a community property state, all property deemed marital property must be divided when a couple divorces and this does include 401(k) accounts and other retirement benefits.
Dividing up these accounts is easier said than done, so it is very important that spouses hire a divorce lawyer experienced in this part of the process to help them legally disburse their 401(k) accounts.
How Are 401(k) Accounts Divided During A Divorce?
The first thing that divorce attorneys have noted when working with clients to divide a 401(k) is that this rule does not apply to the whole account, only the funds that have been accrued during the marriage.
This is done using the approved method of calculating a Qualified Domestic Relationship Order or QDRO, a formula that takes dates and amounts into account to come up with a distribution amount and schedule.
After calculating a QDRO, this must be presented to the court by a spouse and his or her divorce lawyer so it can be approved.
Once the distribution details are approved, notice is then sent to the firm managing the 401(k) account so they are aware of the court order and can distribute the determined amount of funds as directed.
Some Complex Factors To Be Aware Of When Dividing A 401(k)
Highlighting the importance of working with a knowledgeable divorce attorney when dividing a 401(k) account, there are some complicated factors that must be considered when doing so.
Among them is the question of whether or not to account for future inflation when dividing a 401(k) account, as many spouses, lawyers, and courts have differing opinions on this matter.
Another detail that can complicate this transaction is calculating interest that may apply to the account.
Additionally, there is the complex issue of how to split a percentage of a 401(k) account when a loan has been taken on the money and then the important detail of facilitating a correct transfer into another 401(k) so that no penalties are paid.
Work With An Experienced Divorce Lawyer
For anyone who is getting a divorce, lawyers experienced in helping clients with divorce advise that 401(k) accounts are considered marital property that is subject to division like any other community property.
Dividing a 401(k) correctly requires a thorough understanding of how these accounts are split and what must be done to handle special circumstances like accounts with loans against them, calculating future inflation, and other factors that can affect the dispersal.
To ensure each spouse retains his or her entitled retirement funds after the marriage, hire an experienced divorce attorney to assist with these important calculations.
