You’ve spent years, maybe even decades, saving for retirement. Now that you are preparing to go through a divorce, was it all for nothing? Can your spouse take your retirement? If so, is there anything you can do to prevent this from happening?
In Texas, the general rule that applies to all other types of property in a divorce also applies to retirement savings: Retirement assets are subject to division if they qualify as “community property;” and, if they qualify as “separate property,” they aren’t. However, there are various aspects of retirement accounts that make them unique; and, depending upon the circumstances involved in your divorce, all, some, or none of your retirement savings could be on the table.
How Does Texas’s Community Property Law Apply to Retirement Accounts?
In most cases, assets that you accumulate during your marriage are subject to division as community property in a divorce. Texas law requires divorcing spouses to divide their community property according to what is “just and right.” This could mean a 50-50 split, or it could mean an unequal division.
Separate property, on the other hand, is not subject to divison. This includes property that you acquired prior to your marriage (again, in most cases). So, what if you started saving for retirement before your marriage, but then you saved more during your marriage and your pre-marriage savings appreciated in value?
In this common scenario, determining what portion of your retirement is on the table is the first step toward deciding on what steps you need to take in order to protect it. Some of your retirement savings would be subject to divison, and some wouldn’t. This is where the complexities begin.
What if My Spouse Signed a Prenuptial Agreement?
A valid prenuptial agreement will override Texas’s default community property rules; and, if your spouse agreed that your retirement was yours to keep, his or her agreement should be upheld as part of your divorce.
What are My Options if I Want to Protect My Retirement?
Assuming you and your spouse did not sign a prenuptial agreement, then you will need to think carefully about your priorities. Are you set on protecting your retirement, so much so that you would be willing to give up your rights to other property? There are several strategies for negotiating to protect what matters most in a divorce, and coming up with creative alternatives in advance can help you present appealing options to your soon-to-be-former spouse.
Don’t Federal Tax Laws Penalize Splitting and Taking Early Distributions from Retirement Accounts?
Yes. However, there are special rules that apply to dividing a retirement account in a divorce. There is a mechanism for dividing a retirement account in a divorce without adverse tax consequences which is known as a qualified domestic relations order (or “QDRO”). If you ultimately decide that it is necessary and in your best interests to give up a share of your retirement, using a QDRO may be the way to go.
More Questions? Contact the Texas Divorce Lawyers at The Wright Firm for a Free Consultation
If you are preparing for a divorce in Texas and would like more information about the options you have for protecting your retirement (or any other property you own), please contact us to schedule a complimentary 30-minute initial consultation. To speak with an experienced divorce lawyer in confidence, call us at 877-353-4600 or request an appointment online today.