Splitting Retirement Accounts When You Divorce
Texas Divorce & Retirement Account Attorneys
Pension and retirement accounts often represent the largest category of assets in the marriage. Before you decide to give up retirement plan assets in exchange for the marital home, or that you should both simply retain your own accounts, you need to know exactly what you’re dealing with and exactly what you may be giving up.
The type of retirement account is key
Once you have identified all of the retirement assets, it is a matter of determining their value. In most cases, the key is in understanding the different types of accounts:
- Defined Contribution Plans are plans in which the person has his or her own account and there is a sum-certain value in an investment account. The balance of the account builds as money is added to the account and as the investment grows, it generates interest or dividends. These types of plans include 401(k) plans, profit-sharing plans, stock bonus plans, employee stock ownership plans (ESOP), and Individual Retirement Accounts (IRA).
- Defined Benefit Plans are ones in which an employer promises to pay an employee a particular benefit when the employee reaches retirement age. Employers make contributions to the plan, and the contributions sometimes can be increased by the employee. The marital portion of the plan is, in basic terms, the portion of the plan that was accumulated and earned during the period of the marriage.
How to divide retirement accounts when you divorce
Once you know the value of the plans, you can decide how to divide them. There are four options:
- Immediate Offset. If you have other marital assets that can be used to balance the value of the retirement fund, the spouse not receiving the funds from the other assets to equal or offset the value.
- Division of the Plans. You may wish to divide the value of the accounts now. For defined contribution plans, this is relatively easy. A QDRO (Qualified Domestic Relations Order) is required. This document, once approved by the court, instructs the plan administrator on how to divide the asset.
- Deferred Distribution. You may decide to defer division of a Defined Benefit Plan until retirement in order to both determine what the actual amount of the pension will be and to secure potential increases in the value of the pension as retirement age nears.
- Reserved Distribution: Often, individuals ask the court to delay making a decision regarding the division of a pension. This request won’t often be granted in Texas as property division issues are a one-time event that is usually not addressed or revisited post-divorce.
Get your divorce and retirement questions answered free
Our lawyers put a strong focus on educating spouses who are attempting to divorce amicably but simply have questions regarding issues such as how to divide retirement accounts. For a free, no-obligation consultation about divorce in Texas, call or contact us online.