When couples are preparing to divorce, each spouse may wonder how marital assets such as retirement funds will be divided. The way assets are split between the two spouses will depend on the type of retirement account the former couple has and the regulations associated with the account(s). It’s important to know that not all retirement accounts are alike. If you live in Texas, here are some important things to know about receiving assets once your marriage is over.
Defined contributions are retirement plans in which an employee contributes a set amount. The employer will likely match the employee’s contributions to a certain amount. A 401(k) plan is the most common type of defined contribution account. A worker has a specific amount of their paycheck deducted and set aside into a retirement account. The employer matches the contribution to a certain point. The deduction for this account is pre-tax, which means the money comes from the worker’s gross pay before taxes are taken out. Once the employee retires, the money is taxed when received. Account-holders are always aware of what is in their retirement account and what the funds are worth. If the account holder is involved in a divorce, the money from the retirement account generally must be split between the account holder and their former spouse.
For an IRA, the funds are given to each party by way of a transfer after the divorce is final. For instance, if the account contains $200,000, the spouse who is not the retirement account holder will receive a portion of the funds transferred into a new IRA. The funds will not be taxed if they are transferred to an account that similar to the original one.