During the process of dissolving a marriage, one of a spouse’s biggest concerns may be figuring out how to divide shared assets. This is especially true for those who have significant amounts of money in their 401(k)s. Here is a look at how to divide retirement assets during divorce in Texas.
The 401(k) is one of the defined contribution plan options that today’s employees can take advantage of. Determining a 401(k)’s value is straightforward because it carries a daily balance, or cash value. For this reason, this type of plan can easily be split however a judge considers to be appropriate using a qualified domestic relations order.
The good news is that if a divorcing spouse receives payments from his or her future ex’s 401(k), he or she can roll these payments over to another retirement account and not incur tax consequences. Typically, a retirement plan distribution made before a person turns 59 and ½ years old must be taxed at 10% as a penalty. However, a distribution made based on a qualified domestic relations order is usually exempt from the 10% penalty. The recipient, though, will still need to pay income tax on all payments received if he or she decides to spend the payments.
The division of property like retirement plans and other assets can quickly become a source of contention for a divorcing couple. However, it is possible for a couple to reach a settlement on these matters and thus avoid traditional divorce litigation, which can be more costly and stressful than settling out of court. Either way, an attorney in Texas can help a divorcing individual to pursue a financially beneficial outcome considering the circumstances of the divorce.
