Property division proceedings can be among the most complex aspects of a divorce case in Texas. Still, you may go into them feeling as though you have a good general idea of what to expect. This may why the prospect of having to divide up your 401(k) with your soon-to-be ex-spouse comes as such a shock.
Yet upon further review, the reason why this is the case becomes more clear. Contributions made to your 401(k) during your marriage come from marital income (thus making them shared assets). Once you realize, your concern may then shift to how the court handles your 401(k) in your divorce case.
Dividing up 401(k) contributions
Typically the court issues a Qualified Domestic Relations Order to your 401(k) plan provider. This authorizes the provider to divide up the 401(k) funds subject to property division into two separate accounts. You and your ex-spouse then assume investment control over your respective accounts. Cashing out your portion of the contributions is also an option; divorce is one of the few scenarios where you (or your ex-spouse) can do this without being subject to an early withdrawal penalty.
Keeping your full 401(k) in your divorce
If you have concerns about how dividing up your 401(k) may affect your current retirement plans, you can try to keep its full value. Per information shared by the 401(k) Help Center, to do this you likely will have to relinquish your interest in another marital asset in order to convince your ex-spouse to forego their claim to any part of your 401(k). Doing this may help to preserve your retirement plans, yet you may have to give up more than you anticipate. The court values 401(k) assets at their potential future value (not what their worth may be right now).
