One of the biggest components of most divorces is property division. For many, property division may be the source of much stress. After all, there are many different types of assets and debts, which can make the whole process quite complex. Bank accounts, homes, pensions and investments are among the many assets that divorcees often have to consider. Sometimes, it is helpful to focus on each individual asset in order to understand how they might play a part in property division.
One type of asset that often needs to be divided with care is the investment account. While many couples may not pay too much attention to investments — the house and the bank account may seem more pressing — these assets can hold a lot of value. Many divorcees are not aware of their value, nor do they realize that these assets are not so easily divided.
First, investments should be properly valued. A cursory look may make it appear as though two investments have identical value, when in reality tax liabilities can render their worth vastly different. This makes it important to look at and get an expert opinion on each individual investment.
For some assets, a court order known as a Qualified Domestic Relations Order (QDRO) may be necessary. 401ks and pension plans are regulated by the Employee Retirement Income Security Act, making a QDRO necessary. Plus, a QDRO helps with some tax issues, as well as allowing the funds from a 401k to be transferred without an early-withdrawal penalty.
Sometimes a QDRO is necessary, sometimes not. Every divorce involves different assets and thus requires differing divorce strategies. By looking at each individual situation, it is possible to devise a strong divorce strategy tailored to each individual’s needs.
Source: Wall Street Journal, “If Divorcing, Divide Investments With Care,” Lisa Ward, April 6, 2014