I’m Getting Divorced. What Happens To Our Investments?

A client recently reached out with this question:

“We’ve decided to get divorced. What happens to our Investment accounts, IRAs, and workplace retirement plans (401k, 403b)?”

Divorce can certainly be an emotional and difficult season of life. Naturally, dividing the money is one of the first questions people ask as they’ve invested and saved both individually and together throughout their time together.

Fortunately, dividing the money is one of the easier parts of the process.

Joint savings and investment accounts can simply be divided.

  • If it’s cash or money market you’re dividing, a simple transfer into each person’s individually owned account will settle that up.

  • For investment accounts like joint brokerage, community property, or trust assets you'll want to avoid selling assets, which will trigger a taxable event. Instead, transfer shares to each person. Generally, the assets are split 50-50 and transferred to each person’s individual investment account.

    • For example: If you own 100 shares of an index fund and 20 shares of Apple, each person would receive 50 shares of the index fund and 10 shares of Apple. This is important because you’ll maintain the original cost basis of shares; when you sell (and realize a capital gain or loss) the transaction will be on your own tax schedule.

You’ll need an asset division order from the court if you’re going to split any IRAs or Retirement Accounts.

Retirement account divisions need special paperwork to keep them non-taxable.

  • It’s called a QDRO (Qualified Domestic Relations Order). Once received, and submitted to the account custodian, the value (in either dollars or shares) will be transferred to a like-titled account for the recipient: IRA’s will transfer into IRA’s, 401k’s into 401k’s. From there, you can choose to consolidate/roll over those assets if it makes sense.

  • QDROs are non-taxable transactions. Only when assets are withdrawn from retirement accounts, will income tax apply to that tax year.

Property is a bit more complex

For Homes, Auto’s, Collectibles, Artwork etc, you’ll need appraisals. in order to determine the fair market value of those assets. Once the value is determined, there’s a bit of “horse trading” involved where you can decide who gets what.

In many cases, one party may prefer to keep the house, and another the cash or retirement accounts. That’s all going to come down to mediation and/or the courts.

If you’re getting divorced (or thinking about it) and have questions about the money side, give us a call or book an appointment with us online today.