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How qualified retirement plans are settled in a divorce

On Behalf of | Dec 21, 2021 | Divorce

The conditions of your Texas divorce may force you to consider how any retirement plans can be safely divided. A negotiation is a pivotal tool used in divorce litigation when fairly dividing your assets. Some retirement plans, however, have clauses that give spouses a settlement at a set rate without negotiation. These forms of spousal payments come in four distinct ways.

The non-participating partner

The non-participating partner is a spouse of someone who actively contributes to a retirement account. The contributor is the participating partner. The retirement plan is in their name, and their earnings are what have funded the account. Under specific laws, the spouse who makes no contributions is still entitled to their spouse’s payments due to marital property. Overall, retirement accounts fall under community property when you are married.

Claims on retirement assets

Even if they’re non-participating partners, spouses have the right to claim assets or portions thereof held within a retirement account. Such claims are executed on assets under legally defined “qualified retirement plans.” You can expect these options when claims are granted in a divorce:

  • Lump sums: One spouse pays the other a lump sum from their retirement account. This is a one-time payment and final.
  • Rollovers: A non-participating partner can still have their own retirement plans. They can also roll over into theirs what they’re entitled to from their spouse.
  • Direct payments: Spouses can agree that one of them enter retirement and have their spousal benefits received as payments from the retirement plan.
  • Untouched shares: Both spouses even have a right to do nothing with a retirement plan. This allows the assets held therein to grow and mature for a later date.

Divorce in Texas

Filing for and being granted benefits from a spouse’s retirement calls for a QDRO application. An attorney has the legal authority to write a qualified domestic relations order (QDRO) for you. Liable spouses want to ensure that this order is effective before a divorce is finalized. This will confirm what a spouse’s final benefit is, when the payment goes into effect, and for how long.