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IRA Divorce Division in San Antonio

Dividing property during a divorce can be challenging. When there are significant assets, such as IRA’s and retirement plans, the right paperwork must be filed. Assets are not necessarily divided on their current dollar value, so it’s important to assess what will be best for your short- and long-term financial security.

As a newlywed, you likely never thought about whether you lived in a community property state or what equitable division of property would look like. The experienced and compassionate attorneys of Higdon, Hardy & Zuflacht, L.L.P. understand the financial, emotional, and mental burden that divorce creates.

Fair division of your IRA accounts is crucial to safeguard your family’s future. Call our office at (210) 349-9933 today to schedule your initial consultation. You will meet with an experienced San Antonio retirement division attorney who can help answer your questions and advise you on your next best steps.

What Is an IRA?

Many people call an IRA an individual retirement account. However, the IRS calls these individual retirement arrangements. These are tax-deferred investments that help to provide you with financial security when you retire.

There are several different types of IRAs. Most are distinguished by when the federal government taxes the money. Your contributions may be taxed before investment, or the money may be taxed at distribution. They include:

Traditional IRA: This is a personal savings plan where the contributions you make are usually tax-deductible. The money is not taxed when you contribute but is taxed when it’s distributed at your then-current tax rate.

Roth IRA: Contributions to this personal savings plan are not deductible. You pay taxes on your contributions at your current rate, and the money is not taxed when it is distributed.

Payroll deduction IRA: These plans are set up by your employer so employees can make contributions through payroll deduction. They can be traditional or Roth IRAs that are held by a financial institution.

Rollover IRA:  These plans are funded by money that is rolled over from a qualified retirement plan into a traditional IRA. This happens when assets are moved from an employer-sponsored plan, such as a 401(k).

IRA Annual RetirementSome experts estimate you will need 85% of your current income to fund your retirement. While an employer-sponsored 401(k) is a good addition to your retirement plan, it may not be enough. IRA accounts help supplement your retirement savings, give you access to a wider range of investments, and help you take advantage of a tax-deferred or tax-free growth.

Individuals can easily open their own IRA using an online automated service, self-directed brokerage, or a financial professional. How the account is opened does not change the tax status nor how it is divided during a divorce.

How Can a San Antonio Family Law Attorney Help?

Retirement savings are generally a couple’s largest asset. IRAs were first authorized by the Employee Retirement Income Security Act of 1974. Originally, the law limited an IRA to workers who did not have an employer pension fund. However, the Economic Recovery Act of 1981 opened IRAs, so they are available to all workers and spouses.

At the end of the third quarter in 2021, IRAs represented 35 percent of the retirement market. This represents an increase from 23 percent nearly two decades ago. The growth also means that your IRA likely has a significant impact on your financial security.

An experienced and skilled family law attorney will take the time to listen to your concerns and fully understand your situation. The compassionate attorneys from Higdon, Hardy & Zuflacht, L.L.P. understand the impact your divorce and the division of your marital property has on your life. We’ll work hard to ensure your rights are protected, and the process goes as quickly as possible.

When you are faced with a life-changing divorce, you want an attorney who has the experience to handle your case and the compassion to understand your situation. Our attorneys are experienced in dividing retirement assets, including individual retirement accounts, and once the division is determined and approved by the court, we know the process to move the funds into the correct person’s account.

When you have questions about your division of assets, do not rely on Google for accurate answers. The nuances of divorce law change from state to state. You want an attorney who has a successful track record in Texas.

How Do You Divide an IRA in a Divorce?

Every state differs in how they split property during a divorce. Texas is a community property state. This means that any property acquired during a marriage is considered community property. Any property acquired or accrued before the marriage is not subject to division during the divorce.

divide IRA in a divorce

For example, property that was a gift or earned is considered community property when it was obtained during the marriage. These rules apply to the accrual of funds in an IRA.

In 2005, the Texas legislature added information to the family code to clarify the rules the courts use to determine what is separate property. This included the definition of contributions to individual retirement accounts.

Dividing an IRA is more straightforward than dividing an employer-sponsored 401(k). IRAs are not subject to the Employee Retirement Income Savings Act. This means that a qualified domestic relations order (QDRO) is not usually necessary. A QDRO is used to direct the plan administrator to distribute the assets from the retirement plan to someone other than the account holder.

Even when you and your soon-to-be ex-spouse plan to divide the assets in your retirement plan exactly the same way, there are separate legal processes that apply. An IRA is divided using a “transfer incident to divorce,” while a 401(k) is split under a QDRO.

A transfer incident to divorce from the court is necessary to avoid taxes and penalties when you withdraw funds from an IRA. Once the transfer is complete, the new owner takes sole and total responsibility for the tax consequences of any further transactions.

However, if you fail to appropriately and legally label the division of assets from an IRA as a transfer incident, you could owe tax and early withdrawal penalties should your ex-spouse takes an early distribution.

Contact Higdon, Hardy & Zuflacht, L.L.P. Today for Help With Your Questions

Divorces are complex legal procedures that have lifelong consequences for both parties. Call Higdon, Hardy & Zuflacht, L.L.P. if you have questions about the legalities of dividing your retirement assets and IRAs. Our skilled attorneys can answer your questions and advise you on your next best steps.

Higdon, Hardy & Zuflacht, L.L.P. 12000 Huebner Rd #200 San Antonio, TX 78230 Telephone: (210) 349-9933 Fax: (210) 349-9988
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