Lara Bracamonte Davila

Doing What Is Right For You

What’s going to happen to my retirement plan in a divorce?  

On Behalf of | Jan 18, 2022 | Firm News

Many people in the greater Dallas area have considerable money saved in a 401(k) or other retirement plan. This is true even if a person otherwise has little other wealth aside from a family home.

Similar to other assets, those contributions to a retirement plan that took place during a marriage are considered community property subject to division in a Texas divorce.

On the other hand, contributions which happened prior to a marriage or after the divorce remain the sole property of the employee with an interest in the plan.

Under Texas’ community property rules, a court has to divide all community property. However, the court does not have to give each spouse half of the property. Specifically, a court does not have to order spouses to divide a retirement plan.

The court may instead, for example, award one spouse additional other property in exchange for the other spouse’s getting to keep his or her plan intact.

Dividing a retirement plan may require several steps

The spouses may disagree about how much of a retirement plan is community property and may also disagree over what is a just division of the plan.

In some cases, such as when one of the spouses owns an interest in a retirement pension, the court may also have to decide how much the plan is worth in today’s dollars. This process may require one or both spouses to hire an expert witness to explain the value of the pension.

Even if the spouses agree on each’s respective share, they still may have to negotiate how they want to settle up. If they decide to divide the plan itself, they will also have to execute a special court order, called a Qualified Domestic Relations Order, or QDRO, in order to be sure they protect the tax benefits of the retirement plan.