Managing Your Investments During & After Divorce
It is important to make sure that your divorce does not lead to personal financial fallout, especially if you are getting a divorce later in life, after the age of 50, due to the status of your retirement assets after that age. Below, we discuss several tips that we go through with our clients when it comes to managing their investments during and after divorce:
Update Account Beneficiaries for your Investment Accounts
It is crucial to update all of your beneficiary designations if you do not want your spouse to be the beneficiary on those accounts. Part of this process also involves ensuring that you have access to all of the important investment accounts if you have not been in charge of family finances and bookkeeping, as well as all of the details associated with those accounts, such as how they have been set up.
Be Aware Of Asset-Related Penalties & Taxes
In addition, before selling any assets or exit any particular investments, make sure that you understand any tax consequences of doing so. With some annuities, for example, there are penalties if you exit early and you want to take into account the marketplace at the time of your divorce. This also applies to retirement accounts, as liquidation or early withdrawal can come with certain penalties for some accounts. You have a number of options that you can discuss with your attorney when it comes to avoid any penalties or taxes, depending upon the asset; for example; some require that letters be sent to financial institutions. And if you are concerned about any actions your spouse might take on it comes to joint accounts, you will want to take immediate action with your attorney, such as contacting that financial institution to request that an account be frozen until agreement can be reached.
Dividing up retirement accounts can get complicated because the information needed and the rules that apply depend upon the type of account. Every plan has its own guidelines determining how to give an asset can be divided and whether you need to open up a new account or if you roll over into an IRA. For example, your attorney will have to provide a Qualified Domestic Relations Order (QDRO) to the plan administrator to split a 401(k) plan and typically, with 401(k) accounts and pension plans, funds can be separated and withdrawn without penalty.
Keep in mind that distributions pursuant to a QDRO are exempt from the 10 percent early distribution penalty, but this exemption does not apply once assets are rolled over into an IRA. However, also keep in mind that taxes will be different for a 401(k) or IRA account versus a Roth account and this impacts your divorce decree; given that the one account will be subject to taxes while the other may not. Also keep in mind that IRAs do not require QDROs. They are typically addressed in the separation agreement or divorce decree, which is submitted to the IRA custodian. Those funds are then rolled into a new IRA.
Contact Our Texas Divorce Professional Lawyers Today
Dividing financial assets can be extremely overwhelming, however, an experienced family law attorney can assist you with any investment-related issues. They can also steer you in the right direction in terms of working with other financial professionals, such as an accountant or broker, if necessary.
If you live in Texas and have any questions about divorce and how to ensure your accounts and investments are protected, contact our Brownsville family attorneys at Colvin, Saenz, Rodriguez & Kennamer, L.L.P. today.