What Happens to My Investments in Divorce in Texas?

Divorce is a complex process, and it’s understandable that people have questions. However, you have additional concerns when you have significant assets and interests to protect. Knowing how a divorce court would divide your investments is crucial because you’ve worked hard to give yourself and your family a solid financial footing. Your future is at stake, so it’s reasonable to ask, “What happens to my investments in divorce in Texas?”

Most investments acquired during marriage are considered community property under Texas law and are subject to division. Retirement accounts, stocks, bonds, and similar investments are split equally. Separate property, that which is owned before marriage or inherited, is generally excluded from the asset division process.

Various factors affect property division in Texas divorce, including the financial circumstances that will exist post-divorce. Additionally, there are multiple strategies for resolving disputes. Because of these complications, getting help from a high-net-worth divorce attorney in Texas is essential. You may also benefit from reviewing general information about investment accounts and divorce.

Different Types of Investments and Divorce in Texas

Understanding the default rules is essential when considering what will happen to your investments in a Texas divorce.

• Community Property: Nearly all income or assets acquired during the marriage are considered community property. This may include investments purchased with marital funds and increases in value. For example, if you invested $20,000 from marital funds into stocks that grew to $50,000 during the marriage, the entire $50,000 is generally considered community property.
• Separate Assets: Property owned by one party before the marriage is separate property, as is anything acquired through inheritance or gift. However, even separate property can become community property if it is commingled with marital money or used to purchase marital assets.
• Retirement Accounts: Retirement accounts like 401(k)s, IRAs, and pensions can be challenging to divide in a divorce. While contributions made with marital funds are generally considered community property, contributions made with separate property prior to the marriage may be considered separate property. The growth of the account during the marriage is considered community property.

Divorce and Your Investments: What to Know

Getting a firm grasp on Texas community property law is essential when facing a divorce. While the goal is to achieve a fair division of assets, this doesn’t always mean a 50/50 split. Equity also encompasses fairness. Several factors can influence the division of investments, including:

• Longer marriages often affect the division of assets. Courts may consider the fact that one spouse gave up employment opportunities over the years of the relationship.
• If one spouse contributed significantly more to the investments, the court may consider this when making its decision.
• When dividing assets, the court will consider both spouses’ earning capacity, employment options, and financial needs.
• There may be considerations about minor children when a court is determining how to distribute investments

If a 50/50 split disadvantages one spouse because of any of the above factors, the court may make an uneven distribution of the marital investments. While the court has the ultimate authority to divide assets, many spouses resolve divorce matters through negotiation or mediation. There are benefits to working out differences outside of court. You and your spouse can reach a result over which you have more control than you would if a judge decided for you. 

How Are Retirement Accounts Split in Divorce

Retirement accounts can be among the most significant assets in a divorce. Different types of accounts and the potential tax implications can complicate the division process. 

• Qualified Domestic Relations Order (QDRO): A QDRO is a judge’s signed order that divides retirement benefits in a 401(k) between spouses. It is a construct of federal tax laws. This paperwork is necessary to transfer a portion of the account from one spouse to the other. The QDRO must be carefully drafted to comply with federal and state laws. It is essential to consult with an experienced divorce attorney to ensure the QDRO is effective in managing tax matters.
• Transfer Incident to Divorce: To divide assets held in an IRA, a “transfer incident to divorce” form and a copy of the divorce decree must be sent to the financial institution that is the custodian of the account.
• Cash-Outs: In some cases, cashing out a retirement account to divide the assets may be an option. However, because of potential tax consequences, you should consider the pros and cons carefully.

Steps to Protect Your Investments During Divorce

Legal guidance is essential to helping you retain as much of your investments as possible. You can benefit from careful planning, so check out some To-Do’s:

• Gather Financial Information: Compile a complete list of all your assets, including investments, bank accounts, and real estate. Though titles are not the only consideration in a community property state like Texas, you should track ownership of assets, the source of all contributions, and all relevant dates.
• Consider Mediation or Arbitration: These alternatives to litigation can often be faster, less expensive, and more private than taking your divorce to court. For the time and effort you’ve dedicated to building your net worth, you could realize better outcomes through compromise. 
• Protect Your Assets: Avoid making significant investment changes without consulting your attorney. There can be consequences if you engage in transactions that have an impact on your marital estate and the court decides you’ve been hiding or misusing marital assets.
• Consult an Attorney: An experienced divorce attorney can explain how Texas laws affect your investments and help develop an appropriate strategy for division.

Prenuptial and Postnuptial Agreements

While not a guarantee that you’ll get the results you want, prenuptial and postnuptial agreements can offer clarity and certainty regarding the division of assets in the event of a divorce. A prenup takes effect before you get married, but Texas recognizes postnuptial agreements as well. 

If you created these documents earlier in your marriage and the court finds them valid, they can affect the division of your assets during divorce. You cannot create a postnuptial agreement while you’re divorcing and expect the courts to give it credence.

Discuss Asset Protection with a Texas Divorce Attorney

Don’t let uncertainty about your investments cloud your divorce. You have rights to your share of the marital assets and to protect your financial future. Our team at Balekian Hayes, PLLC, is dedicated to supporting your needs. Call us today at 214-828-2800 to set up a confidential consultation to discuss strategies with a Texas family law attorney.