Dividing a 401(k) in a Texas Divorce
If you are going through a divorce in Houston,Texas you naturally have concerns about your assets, including your 401(k) and any other retirement accounts. Other than child custody and visitation arrangements, the division of marital assets is typically the most contested issue in any divorce. Because your 401(k) is likely – in some part, at least – a component of your marital property, it’s critical to your financial future that you pay careful attention. To help ensure that your finances are well protected, you need the professional legal services of an experienced Houston divorce lawyer.
Separating Property: Separate vs. Community Property in Texas
Texas is a community property state, which generally means that any financial assets or debts that you accumulated during your marriage are marital property that, in a divorce, must be divided between the two of you in a manner that the court deems “just and right.” As such, any part of either of your retirement accounts that was earned before your marriage is considered separate property (and remains the owner’s), and any part of either of your retirement accounts that was earned during your marriage is considered community property and is subject to division upon your divorce.
Separate Property Must be Protected in Divorce
If part of your 401(k) or other retirement account was earned before you married, you will need to document this for the court. The court’s typical presumption is that all property is marital property, so the burden is on you to clarify via documentation that shows your 401(k) balances both before and after marriage. The goal is to protect your separate property, and the process of obtaining the necessary records can be lengthy and complicated – especially if the account goes back many years. Beginning the process of gathering these records as soon as you recognize that a divorce is in your future will help you better protect your personal assets.
Temporary Restraining Order for Retirement Accounts
During a divorce, the court will typically issue a temporary restraining order (TRO) or standard injunction to preserve the marital assets throughout the process. This means that you’ll both be prohibited from cashing out assets like your 401(k)s, IRAs, and other retirement accounts. Without the court’s express authorization, it is inadvisable to take a loan against or cash out your 401(k) during the pendency of your divorce. If you are experiencing financial hardship or have an urgent need, the court may consider your plight and allow you to move forward with a loan or withdrawal. Generally, however, Texas courts prefer that divorcing couples keep their marital property intact until the final division is determined.
Also read, “Property and Debt Division: What you Should Know“.
The Division of Marital Property in Texas
If you and your divorcing spouse aren’t able to come to an agreement related to the division of your marital assets – either on your own, through your attorneys, or via mediation – the court will make the final determination for you. While the court’s goal is to divide your marital property in a manner that is just and right, your idea of what is just and right may be very different from the court’s idea. In other words, when the division of your marital property is left to the court, it’s difficult to predict precisely what the outcome will be. Work closely with your attorney to help ensure that your personal assets and your share of your marital assets are well protected.
See our related article, “Property and Debt Division in Texas: What you Should Know“.
Qualified Domestic Relations Order (QDRO)
Sometimes, the court keeps retirement accounts intact in the division of marital assets – if you each have similarly valued 401(k)s, for example. In other situations, however, the court divides such accounts using a legal tool that’s called a Qualified Domestic Relations Order (QDRO). Such an order allows the transfer of funds from one spouse’s retirement account to the other spouse’s retirement account – in the amount deemed necessary to make the division of marital property just and right.
When the funds from one spouse’s retirement account are simply rolled over to the other spouse’s retirement account, the tax implications are usually minimal. If, on the other hand, you are interested in cashing out the value the court awards you, the financial and tax implications are much more complicated, and you’ll want to carefully consider your options with your experienced divorce lawyer before making any final decisions.
Your Divorce Case is Unique
It’s important to recognize that your divorce is unique to its own set of unique circumstances. What may be the best path forward for one divorcing couple is not necessarily going to work for you. The division of marital assets and debts is one of the most important elements of any divorce, and if you have retirement accounts that are a combination of separate and community properties, it makes things that much more complicated. Your dedicated Houston divorce lawyer will work closely with you throughout the divorce process to help ensure that you move into your post-divorce life with the best possible financial resolution.
The More Complicated Your Finances, the More You Need an Experienced Houston Divorce Lawyer
Keeping separate property separate and dividing marital property in a divorce can get complicated very quickly. How your marital property is divided in your divorce is likely to correlate closely with you and your children’s financial future, so it’s important that you do everything you can to protect your rights. The dedicated legal team at Rudisel Law Firm, P.C., in Houston, is here to help.
Read our related Houston Divorce articles, “High Asset Divorce: What you Need to Know” and “Divorce and Property Division in Texas: What Happens to the Family Business“.
Our experienced divorce lawyers have the skill, knowledge, and compassion to help protect your separate property and to help ensure that your rights are well represented in the division of your marital property. We’re here to aggressively advocate for your best interests throughout the divorce process. To schedule a free consultation, please contact or call us at 713-781-7775 today.