It may be easy to assume that you know what to expect as you enter into your divorce proceedings in Texas. Yet as many of our past clients here at Terry L. Hart, Attorney at Law may attest to, there will almost inevitably be a few surprises that arise. One of these is the division of retirement assets.
Consider a 401(k) account. While you may view a 401(k) as an individual asset (as it typically comes from either your or your ex-spouse’s individual employment efforts), contributions made to that account during your marriage come from marital income (thus making them marital assets). This then prompts the question of how the court divides a 401(k) account.
Dividing 401(k) contributions equitably
During property division proceedings, the court typically issues a Qualified Domestic Relations Order. A QDRO authorizes a 401(k) plan provider to make disbursements to an alternate payee. This opens the door for the division of a 401(k) into two separate accounts (with you and your ex-spouse then assuming control of your individual account). You can then allow those assets to continue to grow, or you may choose to cash them out (a divorce is one of the few cases where an early disbursement from a retirement account is not subject to early withdrawal penalties).
Keeping your full 401(k)
If you are the one contributing to a 401(k), you may want to try and retain your full 401(k). Is that an option? The 401(k) Help Center reports that it is. To do it, however, you need to convince your ex to give up their claim to their portion of it. If you go this route, keep in mind that it likely requires that you give up your stake in another comparable asset from the marriage.