Briner Family Law Group

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What happens to benefits and retirement accounts when you divorce?

On Behalf of | Sep 23, 2022 | Divorce

When your marriage ends through divorce, it can be hard to picture your financial future, especially if you are unsure of which financial assets you can fully retain, and which are likely to be divided, including IRAs, retirement accounts, pension plans and stock options. Should you keep the $400,000 home in exchange for your spouse keeping the $400,000 401(k), and what are the IRS requirements and tax implications for each? What is the present-day value of each of these assets? Are 100% of these assets community estate property or is a portion of them the separate estate of a spouse?

Calculating marital portions for investments and benefits can be tricky, and sometimes a simple “trade-off” approach isn’t in your best interest. But leaving it to a judge can be risky as well. Determining how benefits can and should be divided is one of the most pressing concerns of a complex asset divorce.

Valuable employment benefits can be both separate and joint marital property

Whatever you accrued during the marriage is likely subject to division even if the account is solely in your name and you held the job prior to getting married. As a general rule, contributions to a retirement account before marriage, along with increases or decreases in that account, is separate property in Texas and not subject to division. In simple and general terms, the community portion of an IRA or 401(k) would be the difference between its value at the start of the marriage and its value when the marriage ends. Forensic experts are sometimes retained to perform this research and analysis. And with defined benefit “pension” plans, a professional is often retained to calculate each spouse’s interest.

For future compensation, like stock options, a determination is made as to what amount is part of the community estate versus a spouse’s separate estate. A value can then be placed on the asset and a decision can be made to either divide the asset in kind or by an uneven percentage. Or, a spouse can buy out the other spouse. Parties to a divorce also sometimes elect to allow the employee of the benefit to receive 100% of the community portion of that asset and offset that asset by awarding the other non-employee spouse more of another asset.

Those with complex assets may prefer more control

If keeping all of your retirement account or protecting all of your stock options matters the most to you, then you and your attorney can focus on those priorities throughout the suit, especially during settlement negotiations or mediation. The more valuable and complicated your personal holdings are, the stronger the interest you will most likely have in maintaining control over the exact terms of your property division in the form of very precise provisions in your divorce decree.

Educating yourself about complex property division matters in Texas divorces, as well as hiring an astute and strategic attorney, can help you achieve a financially stable future.