While going through a divorce, you hear a lot about alimony, child custody, and assets and property division, but hear little about 401(k) division. If you were not going through a divorce, you most likely would have left it to your financial advisor, a quarterly review, and a couple of statements indicating how your 401(k) investments are doing in the market. However during a divorce, you should not take 401(k) division less seriously than other divorce issues. You may have spent nights tossing and turning wondering what your retirement would be like. Will you have enough to pay for your basic needs and some to enjoy all your hard work? Think about your post-work life and post-divorce life and how 401(k) division will figure largely in it. When talking about retirement savings, it is a part of a broader topic that has to deal with community property in Texas. The division of your retirement savings dips into and affects other areas of your divorce case.
The best way to discuss 401(k) savings is to see how it is connected to how community property is classified and divided during a Texas divorce, how retirement and savings springs forth from that topic, and how the potential division of your retirement benefits will affect other issues of your case. To illustrate these points, we will use a hypothetical case and how the divorce process would unfold with regards to 401(k), property division, and the whole divorce itself.
The division of marital property in a Texas divorce
We have Felicia who is fifty-five years old, working, and feeling secure with her retirement savings in a 401(k) through her employer. Felicia has no children under eighteen years old and is not legally responsible to take immediate care of any of her children at this stage in her life. Although she has no health-related concerns yet, she is not certain how much and how long she will be capable of working at the present level and workload she has. Felicia is married to Donald, who is successful and has a 401(k) which he has contributed to consistently for over twenty years. With their marriage hitting the 25 year mark, most of the contributions towards their retirement savings came during the time of their marriage. In this case, Donald is the higher earner and can keep on working for a significant time into the future. Also, he has the ability to have more income within his reach if he wants to earn more.
In Texas, community property law states that all property which you and your spouse owned during the time of your divorce is community property. Consequently, community property is subject to division in a divorce. It means every piece of property you own during the time of your divorce will be divided between you and your spouse during the case itself. There are ways to keep from adhering to all the elements stipulated in community property law, so that you and your spouse need to work together as a team to divide your community estate. If not, the judge will adhere to all the elements of the community property law, which will significantly impact your divorce.
Community property includes your bank account, home, personal property, vehicles, real estate, and your retirement savings account. The state of Texas is impartial to both properties that bear your name and that of your spouse. Both the properties you own and those of your spouse are considered community property as long as the property was purchased or acquired during the course of the marriage. On the other hand, the properties purchased or acquired prior to the course of your marriage are separate property. If you had little prior to your marriage, then most of your properties are community property. This is different from if you got married later on after acquiring a lot of property prior to your marriage, which means you would have more separate property than community property. With Felicia, she would have more community property than separate property. To prove that you own a separate property, you can point this out to your spouse who will likely do the same. If not, then you will need to prove it with documents like purchase documents and title documents that show which properties are separately owned.
The division of Retirement benefits in a Texas divorce is important
When it comes to dividing your 401(k) retirement savings in a Texas divorce, you need to make sure that the division is mutually agreeable to you and your spouse and adhered to the method you both agreed on how it will be divided in a mediation. You do not want to be in a scenario in which the money cannot be divided and transferred efficiently on time because of delays that have to do with paperwork.
In this case, Felicia and her lawyer need to obtain the information and language from Donald’s retirement plan administrator that needs to be included in the final decree of the divorce in connection with how the 401(k) will be divided. Every retirement plan from different companies will require a certain language to be used in the divorce paperwork that permits the plan administrator to split the 401(k) as the divorcing couple prefers. Felicia’s lawyer will get the plan administrator’s contact information from Donald’s lawyer. It will make sure that both parties will have the proper knowledge that needs to be included in the final decree of divorce and other paperwork that has to do with division of retirement accounts.
Almost always, there is a specific document that will be necessary in dividing retirement benefits as a 401(k) – a Qualified Domestic Relations Order (QDRO). This document will indicate the specifics of how the retirement benefits, the 401(k), will be divided between spouses. You will need to get permission from the plan administrator depending on your spouse’s employer and information on how the document will be drafted. This document, being a court order, needs to be signed by the judge for it to have a legal effect. Felicia needs to make sure that the QDRO is included in the final divorce paperwork, so that no delays will happen including the scenario of a judge not willing to sign outright, in which case Felicia will need to request a hearing.
You need to make sure that everything in your divorce case is accounted for because it will determine how retirement benefits will be divided. In Felicia’s case, because she has less earning power and potential future earning capacity, she will need to be more assertive in negotiating about the division of the 401(k). It would help if she has her own retirement benefit next to Donald’s so that Donald will know where she is coming from as the negotiation unfolds.
If your spouse’s retirement benefits combined with your own are not enough to cover your retirement needs, you may consider requesting for spousal maintenance post-divorce from your spouse. It can be requested and negotiated through a contractual alimony. A contractual alimony will allow you and your spouse to agree on a particular sum that will be paid to you for a definite period of time as support to cover for what is lacking in the division of retirement benefits. A spousal maintenance could be awarded to you as the judge will consider the length of your marriage and other circumstances of your case relevant to meeting your retirement needs.
It is important to remember that no two cases are identical, so there may be special considerations to be made for your case. That is why it is strongly recommended that you have an experienced attorney representing you during divorce. Don’t try to do it alone, get the help you deserve.