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Protecting your pension during a divorce

Divorce is tough at any age, but recently, more people over the age of 50 consider divorce and the long-term impacts it has on their future.

For older couples, questions about retirement accounts and pension plans continuously pop up during the process. How are pension funds divided? How much of my pension can my spouse receive? How can I protect my pension funds before a divorce or after a divorce?

The answers are complex depending multiple factors such as personal circumstances and the state you live in. It helps to think about these questions and ramifications before officially separating from your spouse.

How are pension funds divided?

In Texas, all property acquired during marriage is community property. The courts divide community property equally between the couple despite who acquired it; this includes retirement savings and investment plans. Retirement accounts and pension funds can be a major asset for the courts to consider during a divorce proceeding.

How much of my pension can my spouse receive?

Texas follows community property laws during divorce, but the courts typically do not force you to split your entire pension with your former spouse, only the half of what you earned during marriage. There are rare circumstances where a spouse can receive interest in future retirement earnings through the court.

In rare cases, the court can issue an approved property settlement that provides the pension plan to make payments to a former spouse called a domestic relations order, or DRO. In case of private retirement plans, a DRO can meet certain requirements and be called a qualified domestic relations order. QDROs are appealing because they allow you to change the payout for your investment plans, without early withdrawal fees.

How can I protect my pension before or after divorce?

Court orders and state laws make the division of pensions complex, so planning ahead of time can help ease the burden. If you are not married, a prenuptial agreement can protect your assets or establish a division plan in case of divorce. For couples already married, a prenuptial isn’t an option.

What can I do if I’m already married? First, understand the kind of retirement accounts you have and the value of their investment into the future. Once you establish the value, open up a negotiation between you and your spouse about dividing assets, including retirement savings. If a conversation is not productive, you can use alternatives to court, such as mediation or collaborative divorce.

Unfortunately, you will most likely share a portion of your retirement or pension funds with your former spouse, but understanding the process can help your retirement. 

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