Portrait of John K Grubb

Texas Divorce and Prenuptial Agreement

4550 Post Oak Place, Suite 201 • Houston, Texas 77027-3139

Phone: 713-877-8800 • Fax: 713-877-1229

Divorce and Retirement Accounts Make for Tricky Situations

Retirement accounts can be one of the more difficult aspects of negotiating a divorce settlement. This is particularly the case for those who are not yet retired, as valuing the account can be difficult. In Texas, which is a community property state, the presumption is that everything acquired during the course of a marriage is community property; that is, property that both spouses share together. This means that contributions to a retirement account like an IRA or a 401k make up part of the couple’s community property. If the couple divorces, the accounts are fair game for a judge to divide.

Two approaches to handling retirement accounts are figuring out how much the account is worth and offering a cash buy out, and partitioning the retirement account payouts. Experts like actuaries and accountants will have to make the appraisal that determines the present-day value of a retirement account. This is rarely a straightforward calculation, as determining the value of investments and future payouts is necessarily speculative.

The second option is splitting the retirement accounts to award some of their benefits to the ex-spouse. The method to accomplish this is a qualified domestic relations order (“QDRO”), which is a legal order that alters ownership of a retirement plan. QDROs direct benefits to an alternate payee, in this case, the account owner’s ex-spouse. QDROs are only available for certain retirement accounts, however. The accounts must be subject to the Employee Retirement Income Security Act (“ERISA”). IRAs, for example, do not fall under ERISA.

Have you had any experience dealing with retirement accounts during a divorce settlement? What method did you use to handle these complex assets?

John K. Grubb & Associates, P.C. – Houston divorce lawyers

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