Dividing 401(k) Retirement Plans

 Posted on February 20,2019 in QDROs, Pensions and 401(k)s

While 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.

It’s important to keep in mind that even when a court classifies a 401(k) plan as community property, it doesn’t necessarily mean that the parties will divide those accounts equally. For instance, if both spouses have separate 401(k) accounts of a similar size, the court could order each spouse to keep their respective accounts in lieu of dividing them.

Obtaining a Qualified Domestic Relations Order

When it comes to 401(k) plans, divorcing spouses will need to obtain what is referred to as a qualified domestic relations order or (QDRO). QDROs are court orders that grant a person known as the alternate payee, the right to receive part of his or her former spouse’s retirement benefits. Once the QDRO is approved by the plan administrator, a distribution can officially be made, but only if the document’s terms are consistent with the divorce agreement itself.

Contact Our Round Rock High Asset Divorce Legal Team Today

If you or your spouse have a 401(k) plan and are planning on filing for divorce, you need the advice of an experienced Round Rock high asset divorce lawyer who can ensure that all of your assets are divided properly. Please contact us at Powers Kerr & Rashidi, PLLC by calling 512-610-6199 today to learn more about how we can assist you with your own divorce.

Sources:

https://www.cnbc.com/2018/03/07/dividing-401k-assets-in-divorce-can-be-an-expensive-minefield.html

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