Because Texas is a community property state, any acquired asset is subject to “just and fair division” during a divorce. This can include cash assets, debts, real estate, other property like cars, boats, jewelry and art, and other valuables, but there are a few exceptions.
“Separate” property is an asset acquired prior to marriage or something that is designated as one party’s property by agreement.
401(k) as Marital or “Community” Property
Because it’s another financial asset, a 401(k) may be subject to division. But this will depend on when the money is earned and deposited. If the 401(k) is acquired or added to during the marriage, it is part of the marital estate and subject to division. Additionally, the 401(k) will likely realize gains, which will also become a part of the community property.
Division becomes complicated when one party begins their 401(k) before the marriage and contributes to the account throughout the marriage. Sometimes both parties contribute, especially in a long marriage. Many people change jobs over the years, rolling over their 401(k) into another sponsor. Records may be lost over the years, with no way to trace the original amounts.
Dividing the account will require the services of a forensic accountant who can go back years, if not decades, to determine what part of the account is dividable. Once the account is divided and a court order is completed, the court will order a Qualified Domestic Relations Order (QDRO) for the spouse who is to receive their part of the retirement plan. This document must be executed for the receiving spouse to be paid and should be done as soon as possible for them to avoid losing any gains.
The receiving spouse will have to pay taxes on this amount when they redeem it and can’t redeem it until a certain age.
A prenuptial agreement can also delineate property that is to be kept separate after the marriage and in the event of a divorce, including a 401(k).
How Can I Keep My 401(k)?
If both spouses have their own 401(k)s with roughly the same amount, they may decide to keep their own. The court can let each party keep their 401(k) accounts. If one has more than the other, the party with less will have to petition to have the larger account divided. The party asking must show why they need an additional amount for support in the future and the other spouse’s income and assets.
Another way to avoid dividing the 401(k) is to negotiate with the other party for another asset in place of the 401(k) in exchange for a different asset of similar value. For instance, offering additional equity in the marital home, or a higher proportion of the overall marital assets can offset the value of the 401(k). This way the marital estate can be divided in a 50/50 ratio, but the retirement account would be left intact.
Tarrant County’s Family Law Attorney Can Help
Asset division in a divorce can become contentious, leaving both parties in litigation for months and years. Wendy L. Hart has been helping people in the Fort Worth area with protecting their retirement after divorce and all their family law issues since 2001. She represents both men and women in divorce, including asset and property division, and mediation, protecting the rights of her clients.
Don’t try to handle a divorce, property and asset division, or other family law matter by yourself. Contact The Law Office of Wendy L. Hart today at (817) 842-2336 and get the help you need.