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When people think about divorce and their finances, they start by trying to figure out how they are going to survive day-to-day life. You may be used to living as a two-income family. You may be a stay-at-home mom or dad who supports your spouse as he/she works hard for the family.
However, the financial implications of divorce are much greater than just figuring out how to run two households instead of one. Retirement funds, pensions, investments, and other assets will also need to be divided.
Here are some common questions that you will need to consider when dividing up your assets.
Since most people make planning for retirement an important part of their financial future, dividing up retirement plans is something that shouldn’t be overlooked. It is also important to do it the right way.
To ensure that you don’t get taxed, you will need to go through a “transfer incident to divorce” as you divide up your IRAs. For your 403(b)s and 401(k)s, they will be split using a “Qualified Domestic Relations Order,” otherwise known as a QDRO.
Basically, this rolls over your funds into a new account. If you don’t label it correctly, you will be taxed and may find yourself with an early withdrawal penalty.
A pension, earned by either spouse during the course of the marriage, is considered a joint asset. Because of this, both parties deserve to get a portion of the pension. To make sure that you don’t lose the pension, you must divide it up during your divorce proceedings. If you wait, you may not be eligible to receive a portion of this asset.
Once your pension is divided, the ex-spouse will get a domestic relations order which is given to the pension plan to make sure that he or she gets the payments that they deserve.
For the most part, any trust fund that was created prior to the marriage will not be divided. However, any appreciation of the property that occurred during the marriage may have to be divided. If the trust was created during the marriage, it will need to be divided between the spouses.
There are several options when it comes to dividing up investment accounts and stock portfolios. Many people prefer to sell them all and divide it up. However, you may end up getting taxed if you follow this path.
Others prefer to just split the holdings. If you own twenty shares, you would each get to keep ten. You may still get taxed if you do it this way, depending on the cost basis and how long you have had each of these investments. A good financial advisor will help you divide these assets without costing you too much in taxes.
Many couples forget to deal with their life insurance during their divorce. However, it is important to make the necessary changes to ensure that your children will be taken care of in the event of your death.
In Colorado, according to CRS 15-11-804, even if your spouse is named as primary beneficiary on your life insurance policy, the original beneficiary designation is automatically revoked when the divorce decree issues. That being said, some life insurance policies have irrevocable beneficiaries, which means that you aren’t able to change your beneficiary, even if you do get divorced.
Depending on the type of policy, some people prefer to cash out their life insurance, though it becomes part of your net worth and will need to be divided between the two parties.
It is important that both parties disclose all of their assets during a divorce. This includes overseas properties and offshore accounts. Some husbands and wives try to hide assets in offshore accounts, which is illegal and, if caught, they will face penalties.
This being said, it can be difficult to divide up assets that are overseas because they are subject to the laws of the countries where they are located. It is often easier to get a value for the property and assets so that they can be divided.
Because your financial future is going to change, you should hire a knowledgeable attorney while you are going through your divorce. He or she will make sure that you will come out of your divorce financially stable.
Your attorney will ensure the division of assets and property is done the correct way. If divided incorrectly, you may lose money. You may also be taxed unnecessarily. He or she will also be able to help with any other assets that need to be divided so you get what you deserve.