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Division of Retirement Benefits in Divorce

by | Aug 22, 2017 | Divorce

The division of retirement accounts is of the most common issues faced by divorcing spouses. In many marriages, a single spouse accumulates a large nest egg through his or her employer. This account cannot be accessed before retirement age without incurring a significant tax penalty. How, then, can a retirement account be split during the divorce process?

DISPOSITION OF RETIREMENT & EMPLOYMENT BENEFITS & OTHER PLANS

The general rule is that the part of a spouse’s retirement benefits earned during the marriage constitutes community property and is subject to consideration in dividing the estate of the spouses on divorce. However, Social Security benefits are not divisible on divorce, and are exempt from the division of the community property, regardless of whether the benefits were earned or received during the marriage.

Texas Family Code Section 7.003 states: “In a decree of divorce or annulment, the court shall determine the rights of both spouses in a pension, retirement plan, annuity, individual retirement account, employee stock option plan, stock option, or other form of savings, bonus, profit-sharing, or other employer plan or financial plan of an employee or a participant, regardless of whether the person is self-employed, in the nature of compensation or savings.”

TWO TYPES OF RETIREMENT PLANS
NON-PRIVATE PLANS

Governmental plans and church plans are governed by special statutes applicable to the particular plan. Municipal, Texas Teacher Retirement, Civil Service and Federal Employees’ Retirement Systems each have their own set of rules, statutes and regulations.

Special rules apply to the division of military retirement plans. Some military retirement benefits are subject to division and some are not. For example, Veterans Disability Benefits are not subject to division.

The Federal Railroad Retirement Act governs railroad retirement. The railroad retirement system provides two levels of benefits called “tiers.” Tier I is calculated using Social Security benefit formulas and includes earnings both in the railroad industry and in employment covered by the Social Security Act. Tier II is based on railroad earnings alone. Thus, Tier I benefits are not divisible on divorce, but Tier II benefits are. Some railroad union benefits are also divisible on divorce.

PRIVATE PLANS

Private plans are governed by the Employment Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC) or both.

Not only does the type of retirement plan matter, it also must be determined if the plan is a defined benefit, defined contribution, or a combination of both plans. The federal or state statutes applicable to the plan must be followed carefully.

A qualified domestic relations order or domestic relations order (QDRO or DRO) can be used to allow spouses to negotiate a fair division of retirement benefits without incurring the negative tax consequences associated with accessing retirement funds. QDROs allow spouses to designate an alternate payee on a pension or retirement plan. This alternate payee gains ownership rights over a portion or the entirety of the account.

Dividing retirement benefits can be very complicated, especially in high asset cases. Tim Whitten is a Board Certified Family Law Specialist with ample experience in dividing assets in divorce. Call us at 512-478-1011 or contact us today for a consultation.

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For a Confidential Consultation

Contact Us

512-478-1011

7500 Rialto Blvd., Bldg. 1
Suite 250
Austin, TX 78735
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Family Focused.
Solution Oriented.

Family Focused. Solution Oriented.

Resolving family law matters while preserving family relationships.

Family Focused. Solution Oriented.

Our goal is to help folks resolve their family law issues in a way that protects their interests and preserves their family ties. Most family law cases can be difficult from an emotional and financial perspective. We believe in reducing the emotional and financial stress by offering alternative options to resolving their disputes, such as mediation. We enjoy helping people who are interested in working together to find creative solutions to their circumstances.

We provide a variety of services to clients from all walks of life. We offer both full-scope and limited-scope representation so that you may choose the way you want to allocate your resources. We are open to exploring alternative fee arrangements, in appropriate cases. Contact us to inquire.

Helping You Pursue Alternative Conflict Resolution Methods

Too often clients in family law cases spend substantial sums of money arguing about issues in court and often feel worse at the end of their case than before they started. At The Law Office Of Tim Whitten, P.C., we are sensitive to this reality. This is why we explore alternatives to the traditional litigation approach with each client as we help him or her identify long-term legal interests and goals. After our representation begins, we strive to be available and responsive to each client to ensure that we stay on track with that client’s interests and goals.

Contact the Law Office of Tim Whitten

If you are in need of an experienced family law attorney and you believe that our philosophy may work for you, contact The Law Office Of Tim Whitten, P.C. We are dedicated to helping you and your family move forward peacefully. Call 512-478-1011 to speak with our firm today.

MORE THAN 25 YEARS OF PROFESSIONAL EXPERIENCE

Our primary attorney, Tim Whitten, is certified as a Family Law Specialist by the Texas Board of Legal Specialization. This means that he has experience in multiple case types, demonstrated proficiency, and mastery in some of the technical aspects of family law.

Contact Us Today

For a Confidential Consultation

Contact Us

512-478-1011

7500 Rialto Blvd., Bldg. 1
Suite 250
Austin, TX 78735
Map + Directions

Family Focused.
Solution Oriented.