When couples in Texas decide to divorce, the financial issues at hand often outweigh the practical and emotional concerns. This is especially true when it comes to retirement funds. For couples of at all income levels, these accounts can be some of the largest assets that are part of marital property. In fact, 62 percent of divorce lawyers who responded to a 2016 survey said that retirement funds were the most contentious issue faced by their clients.
It’s important for couples to understand that retirement accounts are governed by many regulations. Errors and imprecision during the distribution process can lead to high taxes and penalties that impact both sides of the divorce. Furthermore, the funds may be inadvertently distributed in an inequitable way.
Retirement accounts that originate at a workplace require a court order called a qualified domestic relations order for distribution. The content of the QDRO should reflect the property division agreed upon in the divorce settlement. Since the order is not issued automatically along with the divorce decree, however, it must be requested. A separate QDRO is needed for each retirement account that requires division. These orders apply to all types of retirement funds, including pension plans and 401(k) accounts.
A divorce lawyer could draft the order and seek its approval and issuance by the court. After doing so, the attorney can work directly with the retirement plan administration in order to ensure that the distribution is handled accurately and fully in line with the agreement reached in the divorce settlement.