Assets and liabilities accumulated over the course of the marriage must be divided between the separating couples when undergoing a divorce under Federal Divorce Laws. These include all possessions and personal properties, including non-monetary items such as stocks, shares, real estate, and debt. These assets will primarily be distributed under the court’s discretion while following state laws.
In Texas, courts generally follow the equitable distribution of all assets and liabilities, which means all properties owned by the community estate will be subject to a “just and right division” between both parties, depending on certain factors.
Although this doesn’t include assets owned by one party before the marriage, all assets that have accrued value during the marriage will still be distributed. That includes your 401k, IRA, pension, and retirement accounts.
Asset distribution in divorce law can be a complex process requiring extensive knowledge of the laws that govern it. Therefore, when you’re currently undergoing a divorce, it is vital that you seek the help of an experienced Texas divorce attorney to help you navigate this complicated landscape.
Marital Property and Your Retirement Investments
There are two general categories of your assets under the law during asset distribution. In the absence of a prenuptial agreement stating otherwise, any property that you and your spouse accrued throughout the marriage will be considered marital or community property. This includes material possessions, real property, bank accounts, and even debt.
On the other hand, any possession acquired before the marriage is considered your property – a separate property that will not be distributed during divorce. A retirement account and 401k that began when you were still a single entity are then regarded as personal property. However, monetary contributions to those funds accumulated during the marriage are considered marital property, which means your spouse is still entitled to a substantial portion of the amount accrued while you were married.
But while spouses may think that they’re already entitled to half of the entire accumulated amount, there are other factors that need to be considered for equitable distribution of the fund under Texas Law. For instance, the spouse with a bigger contribution to the fund is entitled to a larger share. Additionally, any contributions made after a physical separation are also considered non-marital property. If you have any funds that may be considered your personal property, speak with your divorce lawyer immediately.
Can You Fund a Divorce with a 401K?
Upon filing a divorce, an automatic restraining order is in place that freezes the assets of both parties until their distribution is finalized and the divorce proceedings have concluded. While this freeze is in place, each party won’t be able to access their accounts and will be unable to transfer assets in the absence of a court order or an agreement between both parties while divorce proceedings are underway.
There are several exceptions to this freeze, however, that can apply to give one or both parties access to certain assets. One such exception states that both parties can withdraw funds from certain accounts for the purposes of payment of divorce attorney fees and other costs related to the divorce.
Through this exception, you can withdraw funds from your 401k in order to pay a divorce lawyer for representation. But this access is limited and is subject to specific governing laws regarding the amount that you can withdraw from the account.
Furthermore, you still have to be careful when withdrawing money from these accounts, especially before reaching the age of 59 ½, since this could result in taxes and penalties for early withdrawals. Withdrawing your 401k should then be just a last resort.
What is a Qualified Domestic Relations Order (QDRO)?
While most assets are somewhat easy to distribute during divorce proceedings, the same cannot be said about retirement plans. In this instance, a QDRO is issued instead.
A QDRO is a decree or judgment issued by a family court as part of a divorce agreement, awarding a portion of the account owner’s retirement plan to a spouse, ex-spouse, child, or other dependents. Essentially, a QDRO contains instructions on how to divide an account holder’s retirement assets: how the benefits are awarded and how much of it is allotted to the alternate beneficiary.
But before any benefits can be awarded through the QDRO, a few conditions must be met. First, the divorce must be finalized before the order itself can be issued. The order must be given in compliance with the Employee Retirement Income Security Act (ERISA) and must be signed by both a family court judge and the retirement plan’s administrator.
Moreover, Texas state law on equitable distribution still applies to any financial benefits that can be distributed under the QDRO.
How an Experienced Divorce Lawyer Can Help
The entire process of filing a divorce is already stressful as it is. But when you add the intricacies and complexities of asset distribution, especially when it involves retirement accounts, it can get even more complicated. A qualified divorce attorney has in-depth knowledge and extensive experience dealing with such complications to help you gain a favorable ruling.
Call the Law Offices of David Kohm today at any of our locations near you if you have any concerns or inquiries. We will gladly offer a free consultation to help you.
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