Helping You Through The Most Painful Details Of Your Divorce

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2 solutions for retirement account management in a Texas divorce

On Behalf of | Mar 9, 2023 | Family Law

The information that people share about divorce proceedings can be quite misleading because the laws are different in every state. What is true for one family may not apply at all to another family that is navigating this process in a different location. Texas divorces are different than marital dissolution proceedings in many other states.

Although equitable distribution rules are on the books in most parts of the United States, Texas has a community property statute. As a result, the advice offered by friends and family and other states may have very little bearing on property division matters for someone living in Texas. The most significant assets that a married couple shares will often be the focal point of negotiations and disagreements during a divorce that has been filed in the Lone Star State.

Couples will need to share their resources fairly, if not exactly evenly. For example, retirement accounts may represent hundreds of thousands of dollars in marital income and also someone’s primary source of stability as they age. Here are some common solutions for handling retirement accounts in accordance with Texas community property rules that might be worth considering if you’re preparing to divorce.

1. Dividing the retirement account

The most straightforward means of sharing retirement savings in a divorce would likely be to divide the account between spouses. Although people worry that dividing retirement savings years before they are eligible to access those funds might lead to penalties and taxes, that will typically not be the case.

Provided that there is a qualified domestic relations order (QDRO) approved by the courts and submitted to divide the retirement account, a divorcing couple in Texas can share retirement savings by splitting one account into two without any immediate penalties or taxes.

2. Using the value of savings to balance other property

There are many reasons why a couple may not want to directly divide a retirement account during a Texas divorce. Thankfully, community property laws do not mandate the literal division of every community asset but instead simply require that the value of all community property factor into the final decisions made.

One spouse’s share of retirement savings could offset home equity, investment accounts or obligations like credit card debt and student loans. There are many ways for couples to factor in the value of retirement accounts without directly dividing them in a Texas divorce.

Considering every approach for the management of a couple’s most consequential assets contained within their marital estate can benefit those who are preparing for an upcoming divorce in Texas.