Many people in Texas have retirement accounts. However, in case of a divorce, retirement plans add more challenges to the already strenuous and stressful process of asset division. In some states, retirement plans are marital assets that need to be shared equally among the ex-spouses. Here’s some insight on the division of retirement accounts during a divorce.
Qualified domestic relations order
A QDRO is a decree that allows you to divide your retirement accounts during divorce. Splitting a 401(k) or IRA may trigger withdrawal penalties, so you’ll want to ensure that you have all the documentation needed to avoid these penalties.
401(k)s are common contribution plans. Contribution plans have a daily value that makes it easy to determine the amount they hold. Thus, to divide contribution plans equally between spouses, the judge can decide on the amount they deem necessary.
If you are an ex-spouse who receives 401(k) benefits, you can direct the money to a retirement plan with no extra tax. However, you’ll be required to pay any other income tax that you receive.
Family law includes pensions as benefit plans that can be split between spouses. It is harder to value the amount of money in a benefit plan since employees only receive their pension at the end of the month. Additionally, the benefits do not include income earned before and after marriage. The court can, however, determine how to divide benefit plans depending on the present value available.
Are you going through a divorce? You might want to consult an attorney for more guidance on how to divide retirement accounts.