The Teacher Retirement System of Texas (“TRS”) provides retirement benefits for teacher’s across the State of Texas. It is one of the State’s largest benefit programs.
But are those retirement benefits subject to division in a divorce? The answer is, yes, they are subject to division to the extent that they are community property.
Note – this article discusses retirement benefits under the TRS system and not disability or death benefits.
TRS Benefits Can Be Community Property
The same community property rules that apply to other types of property apply to TRS benefits.
This means that there is a presumption that TRS benefits are community property. A teacher-spouse claiming that a TRS benefit is separate property during a divorce must show that the benefits were earned prior to marriage or that there was a marital agreement between the parties characterizing the assets as separate property.
To the extent the TRS benefits were earned during marriage, they are community property and subject to division during a divorce.
TRS Benefits Are A Defined Benefit Type of Retirement Account
Defined benefit accounts provide a fixed benefit for a period of time during retirement. The amount of the benefit is usually determined by a formula based on the length of the employee spouse’s employment and the employee spouse’s salary.
TRS retirement benefits are calculated based on a member’s salary during their 5 highest years of compensation. That average is then increased based on the length of service.
You can learn more about how benefits are calculated by visiting the Teacher Retirement System of Texas website.
TRS retirement benefits may be paid through a lump sum at the time of retirement or through installment payments.
What Part of TRS Benefits Are Subject to Division?
The process of dividing TRS benefits can be complicated.
To the extent that all of the teacher-spouse’s credit under the plan was earned through employment during the marriage, the entire benefit is subject to a just and right division during divorce as of the time of divorce. More on that later.
If some of the teacher-spouse’s credit in qualifying for benefits under the plan was earned through employment prior to marriage, then there is a formula to determine what portion of the benefit is community property and subject to division.
You take the total number of months that the teacher-spouse worked and earned credit during the marriage then divide that by the total number of months the teacher-spouse worked and earned credit. This gives you the percentage of the benefit that is subject to a just and right division during divorce as of the time of divorce.
The actual benefit the teacher-spouse is entitled to under this type of plan is usually determined by some formula involving years of service and salary. In addition, at the time of divorce, the teacher-spouse’s right to receive benefits may not be fully vested but the plan is subject to division regardless.
There are other issues that complicate the division of TRS benefits as well.
For example, the divorce may be years before any actual payments are due under the Teacher Retirement System of Texas plan.
In addition, any increase in the benefit’s the teacher-spouse will receive that is attributable to that spouse’s employment after divorce is his or her separate property and not subject to division. This is why the non-employee spouse’s interest is determined at the time of the divorce.
How TRS Benefits Are Divided In A Divorce
The legal mechanism for dividing TRS benefits in a divorce is through a Qualified Domestic Relations Order (“QDRO”).
The QDRO is a court order to the Teacher’s Retirement System of Texas directing them to make alternative payments of the teacher-spouse’s retirement benefits to the non-teacher spouse.
Texas law specifically allows for direct payment of those retirement benefits from the Teacher’s Retirement System of Texas to the non-teacher spouse.
Alternatives To Dividing TRS Benefits
In many cases, if the marital estate permits, it may make more sense to use an alternative to dividing TRS Benefits.
This does not mean that the non-teacher spouse is deprived of the financial value of his or her interest in the TRS Benefits. It merely means that the non-teacher spouse receives the economic benefit of that interest from another source.
For example, the non-teacher spouse could be “bought out” of his or her interest by the teacher-spouse. This could be by payment from separate property funds of the teacher-spouse or periodic payments after the divorce.
Another option is to award the non-teacher spouse offsetting property. In this case the non-teacher spouse receives other community property of equal value to his or her interest in the TRS Benefits rather than going through the process of dividing those benefits.