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What happens to retirement funds during a Texas divorce?

The two most difficult topics for divorcing couples to agree on are generally asset division and child custody. The more assets you have accumulated, the more difficult the division process can become. More assets and debts just means that there are more things for you and your former spouse to fight about. Certain assets, like retirement accounts, can create complicated issues during asset division.

Did only one spouse have a retirement account? Did the other spouse make any deposits into the account? When was it opened? How much got deposited during the course of the marriage?

Generally speaking, any deposits made during the course of your marriage will get considered as marital property for the purpose of your divorce. Funds deposited before you got married may be exempt from division, but any funds invested in the retirement account during your marriage will likely get split during the divorce. The courts aren't going to care about whose name is on the account or whose paycheck funded the deposits. After all, if one spouse stayed home with the children, the spouse with the retirement account was able to directly profit from the unpaid work of the other spouse.

You can split many kinds of accounts without fees

A big concern for many people going through a divorce with retirement accounts is the potential for fees and fines. Most of the best investment accounts, like 401Ks and Roth IRAs have steep financial penalties, including fees and fines, for early withdrawal. Thankfully, the IRS is well aware that roughly half of all marriages end in divorce. As long as the division of the retirement account complies with laws and with the court order related to your divorce, the account can be fairly split between spouses without incurring any financial penalties.

Of course, there are timing restrictions for penalty-free splits, as well as special paperwork requirements. Your Roth IRA will get split by a process called "transfer incident to divorce." Your 401K or similar account would get split by a process called ""Qualified Domestic Relations Order." So long as the proper processes are followed for these divisions and withdrawals, you and your former spouse can fairly split the retirement account without any fees or penalties.

An attorney can ensure asset division is fair

No one wants to endure a prolonged battle for assets with a former spouse. Unfortunately, that is often what happens in marriages with a lot of assets. Retaining the services of an experienced Texas family law attorney can help make the process simpler and more fair. Your attorney can help you understand what kind of division is likely and reasonable in your situation. Additionally, your lawyer can help ensure that the account division process is handled properly to avoid those fees and penalties.

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