Division of property is one of the biggest challenges that divorcing couples face. If spouses do not have a legally valid prenuptial or postnuptial agreement, they must negotiate a property settlement or have a judge make rulings on the disputed issues.
When dividing assets, inheritances and retirement savings can be contentious and confusing. Below we discuss some of the issues involved.
Was the inheritance kept separate?
Under Texas law, inheritance is not marital property and not subject to division in divorce, if the assets are clearly kept separate from marital assets.
Consider this scenario: the inheritor deposits money from an inheritance into a shared bank account. As time passes, both spouses use the account, and the line between the inheritance and marital property blurs. In this situation, the inheritance was commingled with other marital assets. Without proper tracing, Texas law says the inheritance became marital property and is subject to division in a divorce.
For an inheritance to be “off the table” in divorce settlement negotiations, the inheritor must remove all doubt about the origin of the inherited assets and their separate status. A common approach is to create a separate account for the inheritance. Another option is to create a trust for the inheritance.
Retirement savings might be marital property
In Texas, community property is the law for asset division in a divorce. The property that couples accumulate while married and the income they earn during a marriage belongs to both spouses. Judges sometimes begin the property division process by assuming a 50/50 division of assets might be appropriate. The specific terms of the property division then can be adjusted, based on unique factors from the marriage.
Generally, contributions to retirement accounts during the marriage are subject to division.
When couples divide a retirement account in accordance with a property division decree, a qualified domestic relations order (QDRO) can help couples avoid both penalties and taxes when dividing retirement savings.
Dividing retirement accounts is not always necessary. It is possible to determine the value of the marital portion of the retirement account and then use that to guide decisions made about other assets.
Get answers to your questions
Knowing what to expect from the asset-division process can help people seek a reasonable outcome. Contact an experienced divorce attorney for answers to your questions about inheritances and retirement savings.