How Are 401(k)s Divided in Divorce?

Divorce is overwhelming for anyone to handle. Agreeing on matters like child custody and property division is often a challenge. Even if this is an amicable divorce, you and your spouse could face contention while determining how to split your retirement accounts.

Dividing a 401(k) is one of the most complex issues involved in asset division. You spent a large portion of your life building the account so you can retire comfortably one day. However, now that your marriage is ending, you could lose some of it to your spouse.

Most people think they should walk away with the assets they entered the marriage with and equally divide the property they own with their spouse. Unfortunately, equitable division of assets doesn’t always mean a court will order you to split your property down the middle. When it comes to a 401(k), a range of factors can determine whether you deserve all or part of the funds.

Your 401(k) Might Be Community Property

Typically, state law considers a 401(k) community property. Community property is property acquired during marriage by one or both spouses. Texas is a community property state, so both parties have rights to these assets when going through a divorce.

However, it might be possible to keep the total funds in your 401(k) account if you can prove that it should be considered separate property.

Separate property is property a person acquires before marriage or as an inheritance or gift while married. If you have evidence to show that your 401(k) is separate property, you could avoid splitting it with your partner once the divorce becomes final.

According to Texas Family Code 7.002, the court must divide a divorcing couple’s assets in a just and right manner. That means the judge can use their discretion and consider any contributing factors to decide the best way to split all real and personal property between the spouses.

Just and right doesn’t necessarily mean a 50/50 split or keeping every penny in your hard-earned 401(k) plan. The judge could decide it’s just and right to distribute most of the funds to your spouse because you earn a significantly higher income. It will depend on the circumstances associated with your marriage.

Factors Contributing to 401(k) Division

Multiple factors can influence a judge’s decision regarding the division of a 401(k) account. The most common factors include:

  • Whether the 401(k) is considered community property or there’s evidence of it being separate property
  • Length of the marriage
  • Age of each party
  • Total income earned by both spouses
  • Employment, education, and earning potential
  • The total amount of debt each person owns
  • Which person is the custodial parent if the couple shares children
  • Tax penalties due to 401(k) division
  • Whether the divorce is fault-based, meaning specific circumstances caused the marriage to end, such as adultery
  • Each spouse’s ability to support themselves after finalizing the divorce
  • The physical and mental health of each party
  • Whether either spouse is entitled to a reimbursement claim.

Why You Should Consider Mediation

Divorce proceedings can be time-consuming and costly. Between paying your attorney, filing fees, and court costs, the expenses you rack up can be significant and cause financial strain. It might be best to resolve the division of the 401(k) plan through mediation.

Mediation involves a mediator acting as a go-between for opposing parties to resolve a dispute. You and your spouse will meet with the mediator and your attorneys to try to agree on how to split the funds in the retirement account.

You or your spouse can begin the meeting by proposing an idea to settle the disagreement. Negotiations occur until you work out a plan you’re both happy with and that meets each person’s needs.

If you reach an agreement regarding the division of your 401(k), you won’t have to take the case to court. Mediating this part of your divorce allows you to have some control over the result. However, you could find yourself walking away with nothing if a judge must make the decision for you and your spouse.

Contact an Experienced Woodlands Property Division Lawyer

BB Law Group PLLC understands the uphill battle you face. Dividing a 401(k) plan might seem like a daunting task, but our legal team knows how to make this process go smoothly.

You can depend on us to review the circumstances of your divorce and create a strategy to try to reach your goals. We will fight to protect your rights, so you walk away from your marriage with your fair share of the retirement account.

If you’re considering filing for a divorce and need assistance with a 401(k) division, do not hesitate to contact BB Law Group PLLC. We will provide you with the representation and guidance necessary to get through this challenging time in your life.

Call us at (832) 534-2589 for your confidential consultation.

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