A 401(k) can be divided in a Texas divorce if any part of the account was contributed during the marriage. Texas is a community property state, so the portion of the 401(k) earned while married is treated as marital property that may be subject to division. The part earned before the marriage is considered separate property. Because retirement accounts are complex, many spouses need help determining how much of the account each person owns.
Working with a Frisco family law and divorce lawyer at Albin Oldner Law can help you understand how Texas law applies to your retirement savings and what steps protect your financial future.
How does Texas law divide a 401(k) in divorce?
Texas divorce law separates a 401(k) into two categories: separate property and community property. Contributions made before the marriage belong to the spouse who earned them. Contributions made during the marriage, including money added through employer matches and investment growth from those contributions, are community property and may be divided.
Several issues can complicate the process:
- Both spouses may have contributed to the same 401(k) plan.
- Old account statements may be missing, and neither spouse can show what the account was worth at the time of the marriage.
- The account may have grown through interest, dividends, or market gains.
When these questions arise, a forensic accountant often traces the account to determine how much is separate property and how much is community property. This process can take time, especially when accounts have been rolled over between employers over many years.
How are gains and investment growth divided?
The growth of a 401(k) during the marriage can significantly increase its value. Gains caused by market performance, compounding interest, and reinvested dividends are often part of the marital estate if they stem from contributions made during the marriage.
Texas law allows the separate portion of the account to be traced using accounting principles similar to those used for non-retirement assets. This tracing determines how much of the current balance belongs to each spouse. If the account holder moved money, changed investments, or made withdrawals during the marriage, separating the portions can be more challenging.
Some couples avoid a lengthy tracing process by negotiating a settlement. One spouse may keep the entire 401(k) while the other receives a larger share of different marital property, such as home equity or cash from another account. If an agreement isn’t possible, a judge will decide the division.
Why does dividing a 401(k) require a QDRO?
A 401(k) plan cannot be divided without a qualified domestic relations order, also known as a QDRO. This court order instructs the retirement plan administrator to divide the account according to the terms of the divorce decree.
A QDRO is important because:
- It allows the plan administrator to transfer the awarded portion of the 401(k) to the other spouse.
- It avoids the 10% early withdrawal penalty that would apply if the account holder took money out before age 59½.
After the plan administrator receives the QDRO, they divide the account. The spouse receiving a share will owe taxes when they withdraw their portion. The potential tax burden is often a factor during negotiations, especially when balancing retirement savings against other marital assets.
How can a divorce attorney help protect your 401(k)?
Dividing a retirement account can be tricky, especially when records are missing or contributions span several decades. Albin Oldner Law attorneys help clients understand their financial exposure and negotiate fair outcomes. A family law attorney can also help prepare QDRO documents and work to protect the retirement savings you’ve built.
To speak with a divorce attorney about dividing retirement accounts in a Texas divorce, contact Albin Oldner Law online today or call us at (214) 423-5100 for a consultation.
