If you have developed a comfortable nest of 401(k) funds, you might be wondering how these will be divided during a divorce. In many cases, especially in a high asset divorce, 401(k) accounts can be some of the largest assets to divide. As such, this aspect of property division can add a layer of complexity to a divorce. Today, we review what happens to a 401(k) account during a divorce and what you should know to protect yourself and your assets.
Determine if Your 401(k) Plan Is Separate Property, Community Property, or Both
In Texas, 401(k) plans can be separate property, acquired before marriage, community property, acquired after marriage, or a combination of both. When separate property and community property get mixed up this is called commingled property and it occurs when spouses combine assets. For example, if you had a separate 401(k) account before marriage, but start making contributions to it by taking funds from an account you own with your spouse, you would be commingling assets.
How Will Texas Courts Divide a 401(k) Account in a Divorce?
The division of retirement accounts in a divorce can get complicated due to commingled assets, tax implications, and more. Any funds contributed to your 401(k) account(s) during marriage are considered community property and therefore subject to division during a divorce unless a valid prenuptial agreement was signed. Texas courts are obligated to divide community property in a manner that is just and fair to both parties. As such, here are a few options you could take when it comes time to divide your 401(k):
- You and your spouse can agree to keep your own 401(k) accounts under your own names and not divide them
- Cash out your half of your spouse’s share as part of the divorce settlement
- Exchange community property equal to the value of your spouse’s retirement accounts
An experienced lawyer can help you determine additional options for dividing your 401(k) as well. It is important to note that retirement accounts like a 401(k) fund are valued as of the date of the divorce.
Will You Need Qualified Domestic Relations Order (QDRO) to Divide a 401(k)?
You will need an order called a Qualified Domestic Relations Order to divide a 401(k). This order informs the plan’s administrator on how to pay the other spouse their share of the plan's benefits.
Protecting a 401(k) During a Divorce
If you are interested in protecting your retirement accounts, one of the best ways to do so is to enter into a premarital agreement. In the event you did not set up a premarital agreement, you could also negotiate with your spouse and offer other assets in place of your retirement accounts. These could include your marital home, real estate, stocks, or savings accounts.
There may not be a way to stop your spouse from getting a part of your 401(k) account, but you can consult with a lawyer to help you with this process. He/she will be able to help you negotiate your settlement, which could potentially mean keeping more of your retirement accounts.
If you are going through a divorce and need an advocate to fight to protect your assets, consult with an experienced lawyer at our firm by contacting us online or calling (210) 761-4943 to discuss your options.