How Are 401(k)s Divided in Divorce?
Preparing for a divorce is often a challenge. Even if you and your spouse remain amicable, you still have to decide how to split your property. One of the most complicated assets to divide is a retirement account, such as a 401(k). Even if you spent your life contributing to the account, it might be considered community property, which means your spouse could receive a portion of it in the divorce.
It’s natural to assume you can leave the marriage with your own assets or divide jointly owned property down the middle. However, fairly dividing assets doesn’t always mean a 50/50 split. Multiple factors could determine whether you can keep your 401(k) account.
Classifying Property During a Divorce in Texas
A 401(k) is considered community property, with some exceptions. Community property is anything one or both people acquired during the marriage. Since Texas is a community property state, you and your spouse both have rights to your assets when you get divorced.
However, if you can prove your 401(k) account is separate property, you might be able to keep all of it. Separate property in Texas is any property you owned before getting married or acquired before or during the marriage as a gift or inheritance. If you can prove it’s separate property, you don’t have to divide it with your spouse.
The courts divide 401(k)s and other assets in a manner that is just and right. Keep in mind that “just and right” doesn’t always mean you and your spouse will receive equal shares of your property.
The judge could decide it’s more fair to give your spouse most of your retirement account because they don’t have the ability to earn an income. Or you might be able to request to keep your 401(k) plan in exchange for an asset your spouse wants to keep. Every judge is different, and each will use their discretion when dividing property.
Factors that Could Affect the Division of a 401(k)
Texas courts might consider specific factors when deciding how to divide assets, including a 401(k). These factors could include:
- Duration of the marriage
- Whether the 401(k) is separate or community property
- Education, employment, and earning potential
- The person with primary custody if the couple has children
- Tax penalties associated with dividing 401(k) funds
- Age of both spouses
- Income both parties earn
- Amount of debt, if any, owed by each person
- The ability of the spouses to support themselves
- Whether either person can pursue a reimbursement claim
- If fault played a part in the marriage ending, such as domestic abuse or adultery
- The mental and physical health of both spouses
Not all judges weigh these factors similarly. Certain factors might sway a judge’s decision more than others. It depends on what the judge believes is most fair.
Settling 401(k) Division in Mediation
If you want to settle the division of property outside of court, you could set up mediation. During mediation, each spouse and their attorney discuss how to divide their assets with a mediator. Each side can propose what they believe could resolve the matter in a way that benefits everyone.
Settling asset division during mediation might be the best way to avoid losing the property you want to keep. You have more control over the outcome. If you have to go to court, the judge can make the decisions for you. That could result in your spouse walking away with most or all of your 401(k).
You can begin the mediation with a proposal to your spouse and their attorney regarding your idea for dividing the 401(k). Your spouse can also propose an idea to you and your lawyer. Negotiations can follow to try to reach an agreement both of you believe is fair.
If you resolve the matter during mediation, you won’t need a judge to divide the 401(k) for you. The mediator can prepare a document for you and your spouse to sign to finalize the division of assets. A 401(k) isn’t the only property you need to discuss. The document can also include all the other assets you and your spouse own that you were able to come to an agreement about.
Dividing a retirement account, such as a 401(k), can seem like a daunting task. Whether you paid into the plan and want to keep it or believe you deserve part or all of your spouse’s 401(k) funds, negotiating this matter can become stressful and contentious. You need a knowledgeable legal team to protect your rights and fight on your behalf.