When Texas couples decide to divorce, they may be especially concerned about the division of their retirement funds. After all, these accounts may be their largest assets, and they may take years to accumulate to their current form. According to a survey of divorce lawyers, retirement accounts are among the three most contentious issues for separating couples. The other top two issues are also financial in nature — alimony and business division.
As difficult as it can be to reach an agreement on how to divide a retirement account in the property division process, these are not the only concerns to keep in mind. Both spouses could wind up facing significant fees, penalties or unnecessary taxes if they fail to follow proper procedures for dividing a retirement account. Unlike other types of accounts, 401(k)s and other workplace funds such as pension plans cannot be distributed simply by relying on language in the divorce decree. Instead, a specialized court order known as a qualified domestic relations order (QDRO) must be issued by the court for each retirement account that needs to be divided.
The QDRO must be accurate and specific in order to ensure that a divorcing spouse achieves the agreed-upon outcomes. For example, it should specify a percentage distribution rather than a dollar amount in order to avoid inequities caused by shifting markets between the agreement and the distribution. In addition, if funds are to be sent to a rollover IRA, this must be specified in the QDRO.
People going through a divorce face a number of financial changes that can have serious, long-term impacts. A family law attorney can help a divorcing spouse navigate the process and negotiate a fair settlement on a range of issues like property division and spousal support.