During a “Simple” or uncontested divorce, how should you divide your 401k?

In an agreed divorce, the parties are allowed to divide the retirement accounts however they want to.

Option 1. So, one option is that husband keeps 100% of his own retirement, and wife keeps 100% of her own retirement.

Option 2. Another option is to have all retirement accounts split, in any way the parties think is fair.

Option 3.  Or, one person can keep the retirement, and pay the other person liquid cash in lieu of getting a portion of the retirement.

What is the Texas Law on Dividing 401Ks in Divorce

Texas law says that any money your spouse accumulated before the marriage or by inheritance is 100% the spouse that had the money before the marriage.

The Texas Family code indicates that the money that was accumulated during the marriage equally belongs to husband and wife, regardless of whose name is on the retirement account.

If you were to fight with your spouse over who should get the retirement account, the court will have to give 100% of the money accumulated before marriage, to that spouse that had it already.  But as for the rest of the money, the court will divide it in a way that it deems fair, which is sometimes 50/50, but not always.

How the court will divide your 401K depends on numerous factors like whose fault is it that you are getting divorced, and what other assets are being divided.

What Administrative Steps to Take to Divide a 401K During an Agreed Divorce.

Step 1.  Decide with your spouse on how the 401K is going to be divided.  In making this decision, try to think economically, and not emotionally.

We see many couples just want to give it all to one spouse, because of the hassle of splitting the account.  Remember that in the long run, these savings accounts can make a difference to your overall financial picture.

We like to see couples divide 401Ks in half, as in an agreed divorce, that is often a fair result for both sides.

Step 2. Hire a lawyer or firm to administer the division of your 401k.  Do not try to do this without a lawyer because there are so many things that can go wrong.

Step 3.  Give your lawyer the 401K information needed, including the Plan administrator contact information (telephone, fax, address, email and name).  Your HR department will be able to provide you with this, or you can call the agency that holds your 401K (such as Fidelity).

Step 4.  Your lawyer will draft the divorce decree so as to reference the division of the 401K, and most importantly will draft the Qualified Domestic Relations Order.

Step 5.   Your lawyer will have the court sign the Qualified Domestic Relations Order (“QDRO”) at your final divorce hearing.

Step 6.   You lawyer will send your plan adminstrator a copy of the Qualified Domestic Relations Order for processing.  Upon acceptance, the respective portion of your 401K will be rolled into your spouse’s own 401K.