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What happens when dividing retirement accounts in divorce

On Behalf of | Mar 12, 2018 | Property Division |

A qualified domestic relations order is a type of court order that a couple in Texas might need if they are dividing a retirement account in a divorce. A QDRO allows distributions from a 401(k) or a pension plan without penalties or taxes. It is not necessary with an IRA, but there may be other regulations. For example, a distribution from an IRA should be rolled into another IRA.

It is also possible to do this with a distribution from a 401(k) or from a pension plan although a person can also take a direct distribution and will only have to pay regular income tax on it. The QDRO needs to specify if the distribution will be rolled over to an IRA.

A person who will be receiving distributions from a retirement account should not agree to have the beneficiary changed until after the divorce is final. Doing so beforehand means that if the spouse dies before the divorce is final, the person might not receive anything from the retirement account. In the divorce decree and the QDRO, the amount that each person will receive should be stated in percentages since the account’s value could change.

Property division might also involve splitting assets such as a home, bank accounts and even a business. Texas is a community property state, so the assets either person has acquired since marriage will usually be considered shared marital property. Dividing these other assets may cause some complications as well. For example, the couple may need to decide whether they want to sell the home or if one will buy the other out. If the business is owned by both, they might need to make a similar decision. However, even a spouse who did not help run the company might still be able to claim part of it in a divorce.


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