When a couple undergoes a divorce in the state of Texas, the judge follows community property laws. These laws specify that every account acquired during the marriage must be split 50/50 between both spouses. When it comes to retirement accounts, they’re also split right down the middle.
Qualified domestic relations order vs. transfer incident to divorce
The type of retirement account that you have will determine the paperwork that you need to file. For IRA accounts, you’ll need to use a transfer incident to divorce to initiate the property division process. When it comes to 401(k) accounts, you’ll need to have a qualified domestic relations order, or QDRO. You must have the right document filed for the split to be done.
After you finish the divorce process, it’s likely that you’ll want to take your former spouse’s name off of any benefits that you have. Apart from benefits like life insurance, you’ll also want to remove them as beneficiaries for your retirement account. This is typically easy to do by contacting your plan administrator. You may opt for switching the benefits to your children or even your parents.
Alternative agreements are possible
To simplify the process of including your retirement account in the property division process of your divorce, you may want to offer your spouse an alternative. Instead of them taking their fair share of your retirement account, you may offer them your stake in another asset. Just be sure that the values of each stake are similar once taxes are considered.
Splitting up a retirement account during a divorce can be a complex process. For this reason, you may find it beneficial to contact an attorney to assist you with the legal proceedings.