HOW TO DIVIDE RETIREMENT ACCOUNTS IN A DIVORCE
Retirement plans are viewed by the Texas courts as indirect compensation to a spouse, which is actually an income, earned by the spouse during the marriage.
Any contributions to a retirement plan made during the marriage are viewed as community property by a Texas court and subject to division upon divorce. Marital retirement accounts are pensions, IRA, Roth IRAS and 401(k) accounts established during the marriage.
Assessing the value of retirement accounts is a complex process, particularly if an individual contributed to the account before the marriage, or if some assets accrued in the account while the couple lived in a common-law state.
Since most retirement accounts are subject to steep early distribution penalties, qualifying domestic relations order (QDRO) must be drafted and incorporated it into the final divorce decree. A QDRO allows the parties to avoid paying early withdrawal penalty fees imposed by the federal government. Each party has the option of withdrawing the marital funds, pursuant to the divorce award, and transferring it into a separate retirement account.
In most instances, these are tax-deferred accounts, so no tax consequences are incurred by merely dividing a retirement account in a divorce. However, there may be tax consequences after a divorce if you withdraw funds from a 401(k) before you are retired.
VALUATING THESE ACCOUNTS
The courts value the retirement plan at the date of divorce, not the actual value of the actual retirement benefit. Thus, the value of the community interest in the retirement plan at the date of divorce is not the same as the actual value of the retirement benefit.
Also, a Texas court may consider a disproportionate allocation in accordance with unequal earning capacity between spouses, unequal wealth or parenting time.