During the asset division in a Texas divorce, an employer-sponsored retirement plan may be subject to the property division. Texas follows the community property rules, which distinguishes between property acquired during the marriage as marital property (community property) from property acquired before the marriage or during the marriage as the individual’s property (separate property). Community property is subject to a division in divorce.
A spouse’s assets within a retirement plan is divisible in a divorce. Most private retirement plans fall under the Employee Retirement Income Security Act (ERISA) that permits divorce courts to divide them.
QDROs and community property rules in a Texas divorce
Under Texas community property rules, the portion of the retirement plan assets accrued or acquired during the marriage is typically community property. (The actual calculations can be slightly more complex.
Additionally, the spouses may have a prenuptial or postnuptial agreement to do something different.) That portion of the retirement plan is divisible in the divorce decree. The community property portion of the retirement plan does not require division.
After the court grants a divorce that includes a division of an ERISA-governed retirement plan, an additional step exists. That additional step is a Qualified Domestic Relations Order. The QDRO actually gains its qualified status after submission to the plan administrator for the retirement plan.
The administrator decides the order complies with the plan rules and can divide the plan benefits. If the order does not comply with the plan rules then the administrator rejects it. That means it cannot complete the division of property in the plan.
However, before the QDRO can be qualified it must go to the family court for the judge to sign.
When to seek a QDRO for a Texas divorce
Often people make the mistake of waiting until after resolving the property division (by informal agreement, mediation, or trial) and the divorce granted before dealing with the QDRO. The rationale for this course of action is that there is no reason to draft an order that comes after the divorce until the judge grants the divorce and the property division is complete.
This is erroneous for several reasons.
First, and most obvious, most courts in Texas will sign the QDRO at the time of the divorce decree and that will avoid additional delay in wrapping up the aftermath of the divorce. The qualification process can take up to eighteen months. Waiting to obtain the judge’s signature on a QDRO will only draw things out more. Especially if the order is not qualified and you have to start over.
Moreover, many courts require an additional filing fee for QDROs submitted a certain date after signing the divorce decree. So it can cost a small additional amount to present your QDRO to the court. It’s just an unnecessary cost of time and money.
Second, the longer between the divorce and the QDRO the less likely the QDRO will occur. Some people push it off because they are tired of the legal process and want a break. It’s understandable but failing to finish the process with the QDRO can put your share of the plan at risk. If you get it all done up front then you can truly breathe that sigh of relief that everything is done.
Third, the QDRO language matters as part of the overall property division in a divorce. The terms of the QDRO, especially with pensions, can often put thousands of dollars in play. You want those issues resolved to your benefit.
Considering the QDRO during the divorce process can be very useful.
Do you need a QDRO in an uncontested divorce?
An uncontested divorce in Texas can divide retirement plan benefits but the parties must first decide whether they want to deal with dividing them. An uncontested divorce is a divorce in which the parties reach an agreement on all the issues in the divorce without the normal contested divorce process that relies on attorney negotiation, mediation, or trial.
Also, an uncontested divorce still must divide the marital estate into the separate property of the parties. Retirement benefits accrued during the marriage are community property (unless the parties agreed otherwise). The property portion of the decree should include them, even if you do not divide the retirement assets.
This allows the parties to have clear title to their assets after the uncontested divorce.
Dividing the retirement plans, like a 401k or pension, involves some specific language in the divorce decree and typically a QDRO for each plan. This involves additional work that may lengthen the process expense of the divorce. It is not always worth dividing the retirement plans if a more simplistic division can occur.
However, retirement plans come with unique benefits, such as tax-deferred growth, so it may be worth the extra time and effort to divide the retirement assets along with the house, car and other personal property. This is usually a good subject to discuss with a divorce attorney.
This is something you need to decide before drafting the divorce decree.
Hiring a QDRO Lawyer in a Texas divorce
The best way to maximize the benefit of a QDRO is to start thinking about it early in the process. Whether dividing retirement benefits is a good idea can be a complex question based upon an individual’s financial needs and assets. If retirement assets are a major component of your marital assets then working with a divorce attorney with expertise in retirement assets can be extremely beneficial.
If you plan to divide retirement benefits in your divorce and working alone or with a divorce attorney who does not draft QDROs then you should also work an attorney who understands QDROs. You should find a lawyer to discuss your QDRO needs.