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Are you at risk of losing retirement funds in divorce?

You may be among the many individuals who are looking forward to retirement and the relaxation it can bring. One or multiple retirement funds may have even been set up to ensure that you have enough funds to carry out your heart's desires in your golden years. However, if a divorce takes place, your retirement funds could end up divided with your ex-spouse.

The way retirement funds are divided will depend on the circumstances of your specific case. Of course, because Texas utilizes community property laws, any funds obtained over the course of the marriage will be considered marital property. This type of property is divided between both spouses during the divorce proceedings. Therefore, you could end up with a portion of your soon-to-be ex-spouse's retirement funds while he or she ends up with a portion of yours. However, the outcomes of this division could depend heavily on negotiations and settlement terms.

Typically, awarded funds are transferred from one retirement account to another. However, the way that transfer takes place could affect how the funds are taxed. If a trustee-to-trustee transfer takes place as part of the divorce settlement, the funds should not be taxed. Should the funds be otherwise transferred, such as in some form of support, the funds could face the applicable taxation.

Because this distribution can be a sensitive endeavor, a Qualified Domestic Relations Order, or QDRO, may be utilized. In simple terms, a QDRO is a legal document that helps to ensure that transferred retirement funds are moved correctly and without taxes or penalties. Though this document is typically used for 401(k) plans or other pension plans, it can also be useful as extra security against taxation when transferring funds from an IRA.

It is also important to remember that older individuals are not the only ones who could be affected by this type of division. Younger and older couples going through divorce all need to consider how their retirement funds could be affected by the split. If this is a particular area of concern, finding out more information may be prudent.

You work hard for the money that is put away toward retirement, and the idea of losing any of those funds could be distressing. Luckily, you may have additional legal options that could help you work toward the property division outcomes you desire. Utilizing a collaborative approach to your divorce could allow you and your attorney to negotiate settlement terms and find a legal path that allows you to address your retirement funds in the manner you deem fitting.

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