When you retire, you become completely dependent on the financial reserves you have set aside. Your tax-deferred savings, combined with your pension and Social Security benefits, will be the only income you have to rely on during your golden years.
Regardless of how early you started saving and how carefully you planned, you probably won’t have an excess of resources to share, which will make the idea of divorce concerning. After all, the end of your marriage will mean that you have to split your property with your spouse either through mutual agreement or litigation where a family law judge divides your belongings in accordance with Texas community property rules.
Any marital property is subject to division when you divorce. Can you protect your retirement savings as separate property?
Deposits made during a marriage are often marital property
Although you may be the only one who makes any contributions to the account, your income during your marriage is technically marital property that your spouse has a right to share with you. The contributions that you make to your retirement account and any deposits made by your employer as an employment benefit during your marriage could be part of your marital estate.
Some people sign agreements and specifically designate their retirement accounts as separate property in the event of a divorce. Unless you have such a contract with your spouse, you will likely have to share at least some of the account with your spouse or use its value to balance out other decisions regarding your property and debts.
Do you have to actually divide the account?
The good news for those contemplating the division of a retirement account in divorce proceedings is that you can have an attorney draft a qualified domestic relations order (QRDO) to avoid the penalties and taxes associated with early withdrawals from such accounts.
Of course, it may be possible for you to avoid the division of your retirement account. Those who settle property division matters can prioritize specific terms, such as keeping the entire retirement account and granting other assets to their spouse in the divorce proceeding. Otherwise, in litigated proceedings, a judge will have the final determination about what happens with specific assets, like your retirement account.
Learning more about the basics of property division and similar high-asset divorce concerns can help those preparing to file word.