401(k) Accounts in High Asset Divorces

 Posted on July 30, 2020 in QDROs, Pensions and 401(k)s

While most wealthy couples in Texas will have more than one retirement account that will be subject to division in a divorce, it is important to understand how the court is likely to treat your 401(k) accounts, and how those accounts can be divided without incurring substantial penalties. You should learn more about the classification of 401(k) accounts in a community property state like Texas, and whether there are options for preventing the distribution of your 401(k) accounts in your divorce case. When you have questions or need assistance, you should reach out to a Texas high asset divorce lawyer for help. In the meantime, the following includes information about 401(k) classification in Texas and details about distribution.

Community Property and Your 401(k) Account

As you likely know, 401(k) plans are a particular kind of defined-contribution retirement account, and employers offer them to their employees. The term 401(k) refers to the Internal Revenue Code section that governs these plans. With a 401(k) account, employees make automatic contributions from their paychecks, which are then matched by an employer (the percentage of the match depends on the employer). In traditional 401(k) plans, funds are not taxed until they are withdrawn, although withdrawals from Roth 401(k) accounts are not taxed since those are funded with “after-tax” contributions.

For most married couples in Austin, at least a portion of their 401(k) accounts will be classified as “community property.” According to the Texas Family Code, there is a presumption that assets acquired after the date of marriage are community property unless one of the spouses can prove by clear and convincing evidence that the asset is separate property. Then, community property will be divided in a manner that is “just and right” based on the circumstances of the parties. To be clear, any contributions to a 401(k) account during the marriage will most likely be classified as community property.

Distribution 401(k) Funds or Avoiding a Distribution

Depending upon the nature of your assets and the desires of both spouses, it may be possible to negotiate a settlement agreement in which you retain the balances of your 401(k) account and other retirement assets. Otherwise, you will most likely use a Qualified Domestic Relations Order (QDRO) to distribute funds from any retirement accounts to avoid the early withdrawal penalty.

Seek Advice from a High Net Worth Divorce Attorney in Austin, TX

Going through a high net worth divorce is complicated for a variety of reasons, including the difficulty of classifying and dividing retirement account assets. If you have questions or concerns about how your 401(k) account or another retirement account will be handled in your divorce, it is essential to seek advice from an aggressive Austin high asset divorce attorney as soon as possible. The family lawyers at our firm have years of experience representing high-income clients in complex divorce cases, and we can discuss your particular situation with you today. Beyond the financial complications of your high net worth divorce, we can also have a complex litigation attorney or complex child custody attorney at our firm reach out to you today. Contact Powers Kerr & Rashidi, PLLC online, or get in touch with us by phone at 512-610-6199 to learn more about our services.

Source:

https://statutes.capitol.texas.gov/Docs/FA/htm/FA.3.htm