A few weeks ago, we discussed the fact that retirement accounts are often up for grabs in a divorce. This week, we’ll take a more in-depth look at what that means and how they can be divided. As divorces have become more common for Texas spouses who are about to retire, one of the central issues that divorcing couples must face is equitable property division. In particular, as couples near retirement age, one of the biggest assets to consider in property division is any existing pension plans. Although this can be a challenging asset to divide, it can be made easier using several rules of thumb.
For starters, couples should understand that they have a right to divide these assets — which can include a 401(k), 403(b), 457, employee stock-ownership, profit-sharing or defined-benefit pension plan — as they wish by completing a Qualified Domestic Relations Order, or QDRO. This document allows an ex-spouse to make claims on portions of the retirement plan in a way in which both spouses agree on during divorce proceedings. If they cannot agree on an arrangement, it is instead decided in court according to Texas law.
One suggested approach for those who are formulating a QDRO is to base the amount on the years of marriage during the time this pension was valid. For instance, if a man was married for 10 of the 20 years he spent at a company, since half of the time he spent at the company, he was married, then half of pension might be shared with his spouse. So, if he received $3,000 per month from his pension, $1,500 would be considered the shared amount, and half of that monthly amount, or $750, would go to his ex-wife.
As can be guessed, often these kinds of assets are the most difficult to determine when divorcing couples are planning out property division — and there are other components to consider, like survivor benefits. However, by dividing these assets during the process of divorce, couples can have a more realistic vision as to what their single life will be like after divorce.
Source: The Wall Street Journal, “How to Split a 401(k) in a Divorce,” Anne Tergesen, June 2, 2012