Avoid this costly money mistake during your Texas divorce

Many people neglect to negotiate for retirement assets when divorcing, which ends up hurting them in the long run.

Many people do not realize that funds deposited in retirement accounts during a marriage are marital property, even if the account is held in only one spouse's name. As such, they do not think to ask for a portion of those funds during property settlement negotiations during divorce - and they end up setting themselves up for financial difficulties when they try to retire.

Dividing retirement assets in divorce

Retirement assets such as 401(k) accounts and I.R.A.s are marital property if you or your spouse deposit money into them that you earned while married. Pensions are also marital property because they are considered indirect compensation, so they count as income earned during the marriage. Texas courts divide marital assets, including retirement assets, according to equitable principles, meaning that the court determines the fairest way to divide the assets. That does not always mean that the court divides the assets evenly. The court considers a number of factors when dividing assets including each spouse's need, earning capacity, other assets, health and other circumstances.

When you and your spouse are dividing rights to pension plans or other defined benefit payment plans during divorce, you will need to make sure that you obtain a Qualified Domestic Relations Order. This document grants an "alternate payee" the right to obtain some of the payments under the plan. If you do not have a QDRO, you will not be able to receive funds from your spouse's pension plan.

Tips for property division negotiations

One of the best things you can do at the outset of property settlement negotiations is to seek the assistance of a financial planner. A financial planner can help you assess your current financial situation and your future needs so you know how much you need to secure for retirement funds. A financial planner can also advise you of the tax implications associated with different types of retirement accounts.

You may want to consider offering to forego spousal support payments in exchange for a larger share of retirement account funds. Spousal support payments are taxable immediately and are not part of a long-term plan the way that retirement funds are. Similarly, do not cling to your house rather than negotiating for retirement assets. While houses often appreciate in value, they also cost money to maintain. Retirement assets appreciate in value and are more liquid than real estate - without the upkeep costs.

If you do receive retirement funds in your property division, you should consider rolling them over into another retirement account, rather than using them for immediate expenses, to avoid paying taxes on the money.

Speak with a lawyer

You should secure the services of an attorney to help you with your divorce. An attorney can help make sure that your property division is fair and ensure that the documents are drafted correctly so that you receive your share of your marital retirement assets. If you have questions about dividing assets in divorce, talk to an experienced divorce lawyer who can advise you about your specific situation.

Keywords: divorce; property division; spousal support