With the average divorce cost of $15.000, untying the knot is one of the hardest, yet ugliest experiences many people happen to deal with in their life. The emotional burden that usually results from the process is oftentimes amplified by financial matters and long-lasting battles over the split of assets, including retirement savings, investment accounts, etc.
If you and your soon-to-be-ex-spouse have signed a prenup following the formalities required by your state laws before entering into marriage, then your money is protected, and you will have no problem sharing your marital property. However, if you didn’t have any agreements with your partner, then you should be careful in protecting your assets in a divorce. Below, there are a few tips on how to protect your savings during such a hard time:
Learn the value of your savings
Investment accounts, including retirement ones, are usually divided between spouses when they decide to untie the knot. This type of asset is often targeted by those who are left without any savings and cannot get anything from their exes. But what should you do to protect your savings?
The initial step in protecting those assets is all about learning the rules governing retirement plans and accounts. The latter ones usually come with specific procedures that are to be followed during asset division. Remember that learning the value of your and your ex’s retirement accounts before filing your divorce forms online will only put you in a better position. This is how you can avoid being taken advantage of during the negotiation process.
Update the list of beneficiaries
Note that you will also need to update beneficiaries on your accounts, including retirement ones. For this, call your benefits department to find out who is listed as your beneficiaries and ask if you need to make any changes in the list. To make the necessary updates, probably you will only need to fill out a simple form; however, in some cases, another spouse’s signature may be required to remove his or her name from the list of your beneficiaries. The procedure of changing beneficiaries depends on the type of account and varies from one state to another.
Get access to all investment accounts
It is not uncommon that only one partner in the family manages all investment accounts. If divorce is inevitable, then it is time to learn more about those accounts: make sure that you know whose names those accounts are held in, have the account numbers, passwords, and other information required for accessing the accounts.
Don’t forget about taxes and penalties
When it comes to dividing retirement accounts, note that it may trigger unwanted taxes. To divide 401(k) or 403(b) plans, a QDRO is required. Usually, plan administrators (employers) divide those plans following different guidelines developed specifically for each plan. Oftentimes, non-employee parties are allowed to open their accounts within the plans split. Usually, for a 401(k) account, a QDRO allows any transactions without any penalty. To divide IRAs, no QDRO is required. These funds are usually split following the terms mentioned in a divorce decree or settlement agreement. To avoid taxes when dividing these assets, one must produce a decree ordered by the court and roll the money into another IRA.
To divide a taxable account, such as a brokerage one, you will need to contact the relevant institution and make a request for closing your joint account and opening separate ones. Also, inform the institution about how you want the assets to be divided between the two accounts. Note that not all funds, including insurance products, can be moved to an account opened with another firm. Transferring such funds may trigger negative tax consequences and financial penalties.
Don’t waste any minute
Remember that as long as a part of your investment savings are held in your spouse’s name, he or she has the right to do whatever they want with those assets – he or she may even use those funds to borrow against them. Same deal with any other financial obligation that you share with another party. Therefore, it is important to close all accounts that you and your spouse own jointly and open separate accounts held in your name as soon as possible. To prevent another party from signing up for a new debt taken on in your name, don’t neglect to place a freeze on your credit reports.
Seek help from professionals
Settling financial matters without specific knowledge may be confusing. An attorney with the relevant experience will help you handle your investment accounts in divorce properly. If you want to understand tax implications better, then you may want to consult a broker or any other financial professional before filing for divorce, too.