When people get married and combine their finances, they generally start sharing resources and working toward shared financial goals. Retirement savings are often an important component of a couple’s financial plans for the future. Those funds may, for example, allow them to travel or keep their home in safe condition after retiring and eliminating their main sources of household income.
Married couples can contribute jointly to retirement accounts or may have separate accounts maintained at their respective places of employment. In either scenario, a couple’s retirement savings will likely be a source of disagreement when they decide to divorce. In Texas, community property laws determine how people divide their retirement savings and other resources.
1. Couples must determine what is marital property
The first step when addressing retirement savings in a Texas divorce will involve reviewing the contributions to each account. While there may be one account in each spouse’s name, that doesn’t mean they should each just keep the account in their own name.
Instead, what needs to happen is a thorough review of the accounts and when either spouse made deposits to the account. Contributions made during the marriage are probably marital property it will be subject to division. Balances accrued before the marriage could be separate property that won’t be at risk of division. Establishing how much of each account is marital property is crucial to negotiating the division of those savings.
2. Couples must agree on how to divide their savings
It can be very difficult to agree on the appropriate way to divide retirement savings, especially if there are very different financial circumstances for each spouse. In some cases, spouses will divide the actual account using a qualified domestic relations order (QDRO).
This will add an extra step to the divorce process, as a lawyer will need to draft the QDRO. Then the spouses will need to submit it to the professional managing the retirement account. Other times, the value of different financial accounts will influence what people do with other assets.
There is no one solution for retirement accounts that works for every Texas divorce. Recognizing that reviewing accounts and then deciding how to split them will be a challenge can help those who are preparing for the property division process that occurs in the wake of a decision to file for a Texas divorce.