Most income that you earn in a marriage becomes marital property. When you divorce in Texas, each spouse gets an equal split of marital property. Any account that holds money you earned in marriage can split right down the middle. This includes your retirement accounts.

Retirement accounts can take years to build up. And since retirement accounts often have certain tax benefits, plan administrators cannot just split them up. If a court orders you to split your retirement accounts, you will need to follow certain guidelines to avoid unnecessary fees.

Splitting a 401(k): QDRO

To split a 401(k) or similar tax beneficial plan, you will use a qualified domestic relations order or QDRO. A QDRO is a court order that lets your retirement plan administrator know to release part of your account holdings to your former spouse.

The spouse receiving the money can then roll it over into his or her own retirement account. As long as you properly use a QDRO to take the money out, you don’t have to pay any extra fees in penalties for taxes or early withdrawal.

IRAs: Transferring with an incident to divorce

If you have money in an Individual Retirement Account, or IRA, you have a year from the divorce to split any money in the account without paying any extra taxes or fees. You must make sure the balance follows all rules for a transfer incident to divorce. If it doesn’t, your plan administrator will consider it a normal early withdrawal and hold you responsible for taxes and early withdrawal fees.

Keeping money for your retirement

You have spent a long time saving for your retirement. But just because you’re getting a divorce doesn’t mean you should have to waste extra money splitting your account with your spouse. Speak with a lawyer to make sure you follow all the necessary rules to split your accounts without extra fees.

You have options to split your retirement in divorce without paying extra money towards taxes or withdrawal penalties.