Two vital aspects of your future life in Texas often go hand-in-hand: your marriage and your retirement. Your spouse no doubt features prominently in your retirement plans. Should you divorce, those plans will certainly change, but not simply in who you will spend those years with.
Many of our past clients here at Woodley and Dudley expressed surprise to learn that their 401(k) accounts were subject to property division. This may be a new revelation to you, as well, yet such a fact should not come as a surprise. Contributions made to your 401(k) during your marriage come from shared income, thus making them marital assets. The question now becomes how will the court divide up your 401(k) in your divorce.
THE ROLE OF THE QDRO
Typically any actions involving funds from a tax-deferred retirement account taken prior to actually reaching the age of retirement will net an early withdrawal penalty. Yet in your divorce case, the court will issue a Qualified Domestic Relations Order authorizing your plan sponsor to make a disbursement to your ex-spouse. They can roll these funds over into their own account or cash them out. If they go choose to pursue the latter route, you will want to ensure that they remain responsible for any income tax liabilities that accompany the disbursement.
RETAINING YOUR ENTIRE 401(K)
The 401(k) Help Center correctly states that if you wish, you can attempt to retain the full value of your 401(k) account. To do so, you will need to convince your ex-spouse to relinquish their interest in it. Giving up your stake in a marital asset of comparable value may do just that.
You can learn more about managing marital assets by continuing to explore our site.