Texas is a community property state, so that means property acquired during the marriage is usually marital property that is supposed to be divided 50/50 with your spouse.
This includes any retirement assets you may have squirreled away over the years while you were married – and that may be an unexpected and unpleasant surprise if you aren’t prepared.
Will you really lose 50% of your retirement?
Loosely speaking, retirement assets are just that — whatever investments you have that are designed to provide for you once you stop working. This includes pensions, deferred compensation, individual retirement accounts (IRAs) and 401(k)s, but can involve other things, as well.
Before you can begin to calculate what you may keep and what you may have to divide, you need to know which part of your retirement assets are considered part of the marital estate and which are not. Anything that you invested prior to your marriage might be carved out of the estate and designated your personal property, leaving only the money you added and the interest gained during the marriage to divide.
Once you know how much that is, you may not end up touching your retirement accounts at all if your spouse has a nearly equal amount stashed away that’s also marital property. (Otherwise, you’d simply be trading half of what you have for half of what they have, with no real change for either of you.)
Or, you may have sufficient other marital assets to simply “buy out” your spouse’s share of the retirement funds. For example, if you have $80,000 in retirement that has to be divided, that means your spouse is presumptively due $40,000. You may be able to trade a luxury car or your interest in a vacation property in exchange for your spouse’s release to any claim on your retirement.
If your spouse is due some of your retirement, you must also consider the tax implications. Outright withdrawing the money early to buy out your spouse could lead to aggressive penalties and tax implications, so look into the use of a qualified domestic relations order (QDRO). This is a court order that allows a 401k to be split into two separate accounts (only one of which your ex-spouse can touch).
When you’re dealing with high-level assets and complex issues in a divorce, a mistake could cost you thousands – or more. Experienced legal guidance can help you better prepare for your future.