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How are stocks, IRAs and complex assets split in a divorce?

On Behalf of | Apr 14, 2022 | Complex Divorce & Property Division |

California couples who have decided to get a divorce will need to navigate the complexities as the process moves forward. One of the most difficult aspects of a case is property division. Most will view this as being related to a marital home, automobiles, bank accounts and items the couple amassed while they were married. Of course, this is part of property division. There are, however, other properties that could be up for dispute as part of the case. Specifically, stocks, retirement accounts and annuities could have immense value with the sides in dispute as to how these will be divided. If the sides can come to an amicable agreement, it is beneficial. In cases that are more contentious, it might be necessary to go to court. In still others, there may be room for negotiation. Regardless, having compassionate and understanding advice can smooth the terrain.

Understanding the law for property division

California is unlike many states across the nation in that it uses a community property template. Other states use equitable distribution. In the Golden State, that means property that was acquired after the couple was married will be shared equally. This is community property. Any property that was accrued prior to the marriage will be separate property. If there was a mix of community and separate property it is commingled and will be assessed as to how it will be divided. If, for example, a person owned a business before the marriage and it grew in value and size after the marriage with a part of that due to some level of contribution from the non-owning spouse, then that value increase can be viewed as commingled and divided as such. Frequently, retirement accounts and stocks are commingled, therefore it can be difficult to decide how they will be divided.

Deciding how to divorce IRAs, 401(k), stocks and annuities

Those who are in the middle of a divorce with these concerns should think about the basics. With a 401(k) or a pension, a Qualified Domestic Relations Order (QDRO) will be needed. Since 401(k) division can be muddled by the plan details, people are advised to think about a settlement. A spouse could exchange retaining the full 401(k) for another asset. Liquidating it is an alternative. Or it could be rolled into an IRA for tax purposes and to have greater control over how it is managed. Age is a factor in this decision.

For a pension, it is will likely be viewed as marital property and shared. An IRA is perceived as easier and is community property. IRAs that are opened while a couple was married are community property. If it was in effect before the marriage, then the contributions made while the couple was married will likely be marital property. Annuities will be subject to percentages regarding how they will be shared and tax will presumably be a challenge to address. Stocks and their value can vary and with investments that were made during the marriage, there will probably have been fluctuations in value.

Complex financial vehicles in a divorce require experienced advice

When moving forward after a divorce, it can help to be on strong financial ground. This is true regardless of a person’s employment and situation. Even those who are categorized as a “high-asset” divorce will face these considerations. Those on the lower end of the financial stratosphere need to be aware of how their portfolio and retirement preparation might be impacted by the divorce. Coming to a settlement for property division with the other party can be fruitful and prevent an extended legal battle that is time-consuming and costly. First, before deciding how to deal with the case and property division, it is vital to have advice with all areas of the case and know when it is preferable to settle and when to go to court. Caring help and guidance can be imperative to reach a positive outcome no matter the perspective.