One of the most common assets to divide during the divorce process is a 401(k), and you and your soon-to-be-ex may both own one.
However, focusing on just this account may be short-sighted. Do either of you own other retirement or pension plans?
Calling all assets and liabilities
Texas is a community property state, which means that any property acquired during your marriage belongs to you and your spouse jointly. This includes the marital home, your bank accounts, investments, pensions and retirement accounts. Debts are also part of your marital estate, and these include your mortgage, credit cards and any tax liabilities.
Dividing a 401(k) and other plans
To divide a 401(k) or similar company retirement plan, you need to complete a Qualified Domestic Relations Order, or QDRO. This is a legal document that provides your plan administrator with division instructions per your divorce settlement. However, you need not focus your energies on this particular account. You and your spouse may have other plans that will come into play in terms of division. For example, perhaps you have an IRA, the division of which could offset splitting half the 401(k) balance. Furthermore, an IRA does not require a QDRO. Usually, a letter of authorization and an IRA distribution form are the only transfer items needed. Think simplicity, economy, the end result of property division and how it will affect your future financial picture.
During the property division phase of your divorce, the court will determine how to split your assets and liabilities. However, in preparation for any decisions the court may make, your attorney will focus on protecting your property rights, taking into consideration the expense of creating any QDROs or other transfer vehicles needed, as well as the tax consequences that will follow. Every divorce is unique. You will want the best outcome possible when it comes to the matter of property division and your 401(k) and other retirement accounts.