In a recent post, in the Preventive Family Law for Nevada blog, Allison Herr wrote about a common question among parties going through divorce. The issue comes up in several variations. What happens to retirement funds? Can my spouse get my retirement? Will I have to withdraw funds from my retirement to pay my spouse? Will I lose retirement funds that I earned before marriage? The questions arise in a variety of circumstances. A spouse may have earned some or all of a retirement account prior to the current marriage. One spouse may just not have much retirement to divide. Sometimes, one of the spouses has no retirement. Often, a person considers his or her retirement plan as personal resource which should not be divided because that person alone earned the benefits at that job. Even where both spouses have created retirement accounts, it is common for each party to want to keep all of his or her own account.
The starting point to remember is that under Texas law, virtually all retirement funds earned during a marriage are community property and are subject to division upon divorce. Retirement funds earned prior to marriage are not community property and a court cannot divide them unless both parties agree. Usually, spouses will work out an agreement on how to divide all the assets, including retirement accounts. Courts and attorneys usually try not to complicate matters by dividing every asset. Instead, they usually will divide the community assets by awarding complete assets to one party or the other and “equalizing” the division at the end. It is a good idea to not become too emotionally attached to your retirement account. Such emotional attachment is not rational and puts you at a disadvantage in negotiating a settlement. If your spouse detects your feelings, he or she may manipulate you by threatening to take the retirement so that they can end up with something more valuable that they really want. In addition, the account is just an asset and a court really could award all or part of the community portion to your spouse. There's no reason to get upset over that unless the account has some special value or you expect a big increase in value in the future. It is not necessary for a court to order a party to withdraw funds from the retirement account and pay them to the other spouse. A special court order, the qualified domestic relations order, can split an account without causing tax consequences or penalties. The best way to approach the retirement accounts is to plan ahead and figure what your needs and goals are about retirement. Will you have sufficient assets to support you through retirement? Do you have separate assets? Are you realistically expecting an inheritance? Can you project a budget for your needs and living expenses? What amount of money now will it take to support you in the future? Do you want risky, but very profitable investments in your retirement account, or do you want a conservative approach that is safer, but less likely to grow significantly? It would actually be a good investment for you to get expert advice from a financial professional who is not trying to sell you a product. You can ask your attorney for a referral to help you find someone to help you plan. With careful thought and planning, you can protect your future, with or without a specific retirement account.