Going through a divorce can be a challenging time for anyone, and it can be even more complex when it comes to dividing assets, including retirement benefits. In Texas, as in most states, the division of retirement benefits during a divorce follows specific rules and regulations. This article outlines the impact of divorce on Texas retirement benefits, including how the courts split pensions and benefits.
Divorce and Retirement Benefits in Texas
When spouses in Texas decide to divorce, all property acquired during the marriage is subject to division. This includes a portion of retirement benefits, whether they are earned through a defined benefit plan, like a traditional pension plan, or a defined contribution plan, like a 401(k) or IRA.
Defined Benefit Plans
Defined benefit plans are typically funded by an employer and offer a guaranteed retirement benefit to the employee. In Texas, the portion of a defined benefit plan earned during the marriage is considered community property and subject to division. Courts usually use a formula called the "time rule" to decide the amount that will be divided between the two spouses.
The time rule formula is represented by this equation:
Marital fraction = (length of marriage during service credit) / (total years of service credit)
The marital fraction is then multiplied by the total benefit accrued by the employee to ascertain the share of the pension that belongs to the ex-spouse.
It’s worth noting that some defined benefit plans can use different methods to calculate benefits, which may impact the amount a spouse could receive during divorce.
Defined Contribution Plans
Unlike defined benefit plans, defined contribution plans, such as 401(k) or IRA accounts, have a balance that reflects the amount contributed by the plan participant and potentially their employer. In Texas, the portion of a defined contribution plan earned during the marriage is also considered community property and is usually divided equally between the spouses.
Qualified Domestic Relations Orders
When dividing a defined benefit plan, a qualified domestic relations order (QDRO) is typically required. A QDRO is a court order that legally separates the assets of a retirement plan for a divorced spouse to receive their share of retirement benefits. It’s up to the plan administrator to accept or reject the QDRO, which is why the order must be drafted correctly with the approval of both parties.
Government Pensions
Pensions from the government are also subject to division. However, certain rules apply. For instance, if the employee has a government pension, like a military pension, the Uniformed Services Former Spouses’ Protection Act (USFSPA) regulates who is eligible to receive retirement pay. The act permits a terminating spouse to receive up to 50% of their ex-spouse’s military retirement pay.
The same applies to other government employees where the government pension scheme is regulated under the public employee retirement system (PERS) plan. For those, the benefit-sharing formula will vary with each scenario.
Conclusion
Going through a divorce can be an overwhelming and complicated process, especially when it comes to dividing retirement benefits. It’s essential to have the right guidance when approaching Texas retirement benefits during a divorce. An experienced lawyer can assist with creating a QDRO, help sort out what the community property might be, and ensure the spouse receives their rightful share of retirement benefits. Contact a family lawyer and let them help ensure that you receive the fair share of retirement benefits you deserve.