Division of Retirement
Division of Retirement Plans
Texas Courts have the authority to divide a retirement plan, just as any other asset in a divorce on a “just and right” basis, and an equal division is not required. Nothing in Texas law requires the division of a retirement plan; however, in the vast majority of cases, division will usually be required in order to obtain a just and right division of the community estate in a divorce. In most cases, retirement benefits will be the most valuable asset in the entire marital estate.
It is important to know what kind of plan is being divided so that you will have a clear idea of how and when distribution of any awarded benefit will occur. Also, the Decree to be drafted will require different provisions and language depending upon the plan type.
In the event there is a question of whether or not an employee participates in a retirement plan, adequate discovery will resolve that question. Examination of a pay stub will often indicate whether or not a contribution is being deducted for a defined contribution plan. That will not usually indicate participation in a defined benefit plan. You may not be fully aware of what you and your spouse’s retirement plans include and your spouse may not be honest about their plan. You cannot divide a retirement plan if you do not know whether or not it exists.
A retirement plan that meets the requirements of Federal law is considered to be a “qualified” plan. There are two basic types of qualified plans: defined benefit plans and defined contribution plans. Some employers also offer retirement plans that are non-qualified, especially to highly-compensated executives. Most of the non-qualified plans can be identified by the use of certain words in the name of the plan, such as “supplemental”, “executive”, “excess” or “bonus”, however, that is not always the case.
A non-qualified plan is not subject to the terms of Federal law and the plan does not have to accept a Qualified Domestic Relations Order (QDRO), Domestic Relations Order (DRO), or other division order. It is important to identify non-qualified plans early in your divorce case and determine if the plan will allow a transfer of funds. In many cases, there is no way to accomplish a transfer from one spouse to another, so that must be taken into account in negotiating a settlement or trying the case. It could be a serious problem if your case is settled with your spouse to receive a portion of such a plan, but only to find out after your divorce is finalized that the division cannot be done.
Local, state and federal government plans are specifically not subject to Federal law, although most will accept a QDRO, DRO, or similar division order. The plans of churches and charitable organizations are also usually exempt from Federal law, but most also allow division.
Some companies offer stock option awards, but very few are qualified or allow a division or transfer to a former spouse. In such cases, your Decree should contain very specific constructive trust language, including a mechanism for the employee to exercise his or her stock options upon certain conditions. The Decree should also specify the manner and time period in which the employee pays the former spouse his or her portion of the exercised stock option proceeds.
Although IRA’s and annuities are types of personal retirement vehicles, they are not employer-sponsored and most do not require a QDRO or DRO to transfer to an ex-spouse. You should check with the financial institution to determine what is required to make a transfer upon divorce. Some financial institutions will require a QDRO or DRO to make such a transfer. Others may only require very specific language in a Decree, including account numbers. Also, some may require additional paperwork to be completed.
If you and your spouse are willing, a properly written agreed decree of divorce and related orders may be drafted and presented to the Court. But, if you are unable to reach such an agreement, and are not receiving any cooperation from your spouse concerning retirement, you will need the experience of a family law attorney who has been involved in such contested cases to secure a just and right retirement division that a Court may find that you are entitled to receive.
Our firm has served the Dallas area for over 40 years, and attorney Jerry W. Melton is Board Certified in Family Law by the Texas Board of Legal Specialization. We have the resources to answer all of your questions concerning retirement division in your divorce and the qualifications to present a strong case for you. Please fill out our form online or call 972-980-8000 today to schedule a free consultation.