Retirement is often mistakenly believed to belong to the person that earned it. What is misunderstood by many people getting divorced, is that your income belongs to the community estate. In other words, it is no longer “your” income but “our” income once you get married. That is because your time, toil and talent belong to the marriage (unless you have a prenuptial or postnuptial agreement that determines your property rights in a divorce). No matter where the income for that time, toil and talent goes – retirement account or bank account, it does not change the fact that it is community property. 0
There are different kinds of retirement accounts. The most common types of retirement:
- Defined Contribution Plans. These include 401(k) Plans, Roth 401(k) Plans, 403(b) Plans, 457 Plans, Individual Retirement Accounts (IRAs), Roth Independent Retirement Accounts, Thrift Savings Accounts, and Simplified Employment Pension Plans (SEP IRAs),.
- Defined Benefit Plans. There are traditional pensions and cash-balance plans.
- Government Retirement Benefits. Sometimes these pensions replace social security entirely.
- Disability Benefits.
- Social Security Benefits.
Some forms of retirement are not property at all. Social Security Benefits are not property and, therefore, are not divisible in a divorce. However, if you have been married for at least 10 years and do not remarry, you may have your social security benefits calculated based on your former spouse’s social security earnings history or yours, whichever nets a higher payout.
Social Security Disability benefits, like social security benefits, are not property and not divisible. Veteran’s Disability benefits are paid instead of a pension for those that qualify as disabled. This means that while the pension might have been divisible, federal law exempts Veteran’s Disability payments from division and therefore, Veteran’s Disability benefits are not divisible in divorce.
Most other forms of retirement are considered property, and like all other types of property, can be characterized as separate property or community property. Sometimes, part of the retirement is separate property and part of it is community property. This occurs when a retirement account has deposits made both before marriage and during marriage. It also occurs when a separate property plan is rolled into a community property plan.
Once retirement benefits are characterized, the community property retirement benefits are divisible when the entire community estate is divided in a “just and right” manner. If the retirement benefit is regulated by Employee Retirement Income Security Act of 1974 (ERISA) then a Qualified Domestic Relations Order (QDRO) is necessary for the division of the benefit.
If the retirement benefit is a defined contribution plan the part awarded to the nonemployee former spouse will be placed in a separate retirement account, accessible only by the former spouse to whom it was awarded. That former spouse can then withdraw it and pay the taxes and penalties (if withdrawn before age 59 ½), leave it in the account or even roll it into another account of his/her choosing.
If the retirement benefit is a defined benefit plan, then the nonemployee former spouse will receive a payment each month for the portion awarded to that spouse, starting after the divorce if the plan is already in repayment or starting when the employee retires. The payments will continue for as long as the plan states, and there may even be a survivor benefit after the employee former spouse dies.
Military pension plans are unique and are controlled by federal law, not Texas law. For this reason, it is important that a divorce attorney with experience in military plans is hired. Military benefits available to a former spouse can vary depending on the time married while the spouse served and length of former spouse’s service.
Retirement benefits can be the largest asset in a divorce, but are often miscalculated, mischaracterized, or overlooked entirely. It is important that an experienced divorce attorney is hired to ensure that you receive your fair share of the retirement benefits. Robin R. Zegen has the legal and financial experience to protect your rights in property division. Call Robin R. Zegen for a consultation today.