Understanding Community vs. Separate Property
In Texas, income from work is categorized as either separate or community property. Community property means both spouses have an equal interest, while separate property is owned solely by one spouse.
Income and Timing
It’s crucial to understand that current wages are determined by when they are earned, not when they are paid. For instance, if you earned income before marriage but were paid after, that income remains separate property. Conversely, income earned during the marriage but paid post-divorce is still community property.
Future Wages and Bonuses
Future wages, even if based on current earnings or continued service, are typically considered separate property due to their contingent nature. Bonuses are evaluated based on when they were earned, not paid. Discretionary bonuses, like yearly Christmas bonuses, are usually separate property since they’re not guaranteed.
Retirement Benefits: A Complex Matter
Retirement benefits are a significant concern in divorce cases. Here’s a breakdown of the key points:
- Types of Retirement Plans
- Defined Benefit Plan: Promises a specific amount at retirement (e.g., pension plans).
- Defined Contribution Plan: Employer contributes to an individual account (e.g., 401(k), profit-sharing plans).
Stages of Retirement Benefits
- Accrued: Employee becomes eligible to participate.
- Vested: Benefits are guaranteed.
- Matured: Employee reaches retirement age and can receive benefits.
Dividing Retirement Benefits
When the number of years worked and the number of years married overlap, dividing these benefits is straightforward. However, if benefits were earned both before and during the marriage, we use specific formulas to determine the division.
Federal and Military Benefits
Federal and military retirement benefits have unique considerations:
- Federal Benefits: Civil service retirement systems (CSRS, FERS), Thrift Savings Plan, and survivor annuity options.
- Military Benefits: New blended retirement system, Thrift Savings Plan, and the potential for converting retirement to disability, which is not divisible in a divorce.
Qualified Domestic Relations Order (QDRO)
A QDRO is necessary to divide certain retirement benefits. It requires court approval and the plan administrator’s consent, adding complexity and cost. Hence, exploring alternatives to dividing retirement benefits can be beneficial.
Navigating the division of income and retirement benefits in a divorce can be intricate. Stay tuned for valuable insights and practical advice.
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