In Texas, Individual Retirement Accounts (IRAs) are considered to be community property. This means that the property is communal and owned equally by both partners in the marriage. There are exceptions, such as a portion of the account that was established by one spouse prior to the beginning of the marriage.
Since Texas is a community property state, this determines the way that assets are divided in a divorce. Both partners in the marriage legally own the shared assets together, regardless of which spouse’s income funded the assets. This applies to IRAs as well. There are several types of IRAs, including a Roth IRA, a SEP IRA, a SIMPLE IRA, or a traditional IRA. These types vary in their stipulations and requirements, and they may offer tax-free or tax-deferred contributions and growth.
In Texas, the portion of an IRA that is considered community property is the amount that was added to the IRA during the marriage. These additions may be the result of direct monetary contributions or the result of growth in the form of interest. Since an IRA may not be jointly held, one spouse is the owner of the account. Even if the other spouse does not have their own retirement account, that spouse is still legally entitled to the IRA of the other spouse since it is considered community property.
However, this is not true of the portion of the IRA for which the contributions were made before the marriage began. This part of the IRA would be considered separate property, owned only by the originating spouse. The spouse who is claiming a portion of the IRA as separate property must prove to the court that they are legally the sole owner of that portion of the account. The interest that the IRA accrued during the marriage would likely be community property. Any interest that accrued prior to the marriage would be the separate property of the originating spouse.
Community property may be divided by an agreement between the two spouses. If they are able to agree, the court will likely accept their agreement for the division of property. In the event that the two partners are unable to reach an agreement, the court will divide the assets in a manner that is just and fair. This does not necessarily mean that the division will be a 50/50 split of each individual asset. For example, rather than liquidating an IRA to then divide the resulting cash, one spouse may be awarded the full retirement account. If that occurs, the other spouse would likely receive other assets that have a comparable value.
In the event that an IRA would be divided or liquidated as part of the divorce, an order must be explicitly included in the divorce decree or settlement agreement to that effect. The order would state specifically how the IRA would be divided and would include details, such as names and amounts. When this information is included in the divorce decree or settlement agreement, the original account holder will avoid a taxable distribution in which they may be subject to penalties for early withdrawal.
A consideration, in this case, would be the liquidity of the investments in the IRA. If these investments are not easily sold, then the effective value of the IRA may be less than the amount of the retirement account appraisal.
If you are going through a divorce, you need a strong legal team to take care of the details and make sure that you get to keep what is legally yours. If your marriage involves retirement accounts of any kind, you may be entitled to a portion of the balance, whether or not the account is in your name.
Call the Adams Law Firm today at (281) 391-9237 to discuss your case with one of our divorce attorneys. We know that this is an emotional and draining time, and we are here to support you and make your life easier. Our firm’s values mean that we treat each person who comes to us for help with compassion and individualized attention. All situations are different, and if you weren’t going through a difficult time, you likely wouldn’t need us. We can help you successfully navigate your divorce and preserve the assets that are rightfully yours. We will fight for you so you can leave this emotional experience behind and get back to living the life you deserve.
If you or someone you know is going through a divorce, call (281) 391-9237 today to speak with one of our divorce attorneys about your case. We’re here for you.