One of the most common questions people have on the subject of property division during divorce is the following: when I divorce, will my retirement account be subject to division by the court? The answer is a bit complex. In this post, we will dive into this issue of the divisibility of retirement accounts in a Texas divorce.
Quick Overview: Texas is a Community Property State
Perhaps the first thing we should do is reference the fact that Texas is a community property state. This basically means that Texas courts start with a presumption that all “marital property” should be divided equally following divorce. There needs to be evidence to overcome this presumption, but it is still possible for a Texas court to divide marital property unequally. If Texas divides community property in this manner, the next question logically follows: are retirement accounts considered “marital property”?
Many Retirement Accounts May Be Subject to Division During Divorce
The answer to this question is that retirement accounts can be marital property, but they can also be separate property. In fact, in some cases the same retirement account can be both partial marital property and partial separate property! As readers may recall from other articles, separate property is not subject to division during divorce. This means that the original owner of the separate property will be able to hold onto that property after the divorce.
The issue pertaining to the classification of property ultimately focuses on timing. If property is acquired prior to the marriage, it is typically classified as separate property, and if it’s acquired during the marriage it’s considered marital property. This is the general rule. Things can become a bit convoluted when we deal with certain types of property which can be improved upon, added to, or commingled in such a way as to blur the timing of acquisition. So, for instance, if a person begins a retirement account before the marriage, but makes contributions after the marriage, the retirement account will typically be considered partially marital and partially separate property.
The Standard Approach of Texas Courts
When dealing with retirement accounts in a divorce, Texas courts use the following “standard approach”: (1) the court determines the value of the retirement account; (2) the court determines the portion of the retirement account which is marital property; and (3) the court determines the portion of the account which is marital property which should be distributed to each spouse. Texas courts have developed this approach in lieu of express guidance in Texas law. Texas law expressly states that courts are supposed to “determine the rights” of each spouse in retirement accounts, but doesn’t provide a specific methodology for dividing the property.
This approach applies to most types of retirement accounts without any complications. Let’s consider a common example. A spouse enters a marriage with a retirement account which has a value of $25,000. The spouses divorce 5 years later, and during the marriage the spouse contributes an additional $50,000 to the retirement account. In this scenario, the $50,000 contributed to the account during the marriage would be considered marital property and subject to division. This is true despite the fact that the account was already started before the marriage, and that the other spouse did nothing to contribute to the account during the marriage. Because the $50,000 is considered marital property, it is subject to division.
Certain Accounts Have Additional Rules Regarding Property Division
One other thing which should be mentioned is the fact that certain retirement accounts have additional rules which come into play during property division. Social Security benefits, military retirement accounts, and a few other types of pensions have additional rules. One rule is that these accounts are not subject to division unless the couple has been married at least 10 years. And then, even after that requirement is met, there are additional requirements too.
Contact The Ramage Law Group for More Information
If you want to learn more, reach out to The Ramage Law Group today for more information. Hopefully, this has shed some light on this issue. Give us a call today at 469-207-1079.