Tips on Handling Stocks and Investments During a Divorce

How to Properly Manage Your Investments in a Divorce

While many types of assets are relatively simple to split during a divorce, the same isn’t always true with stocks and investments. Many of the 750,000 people who filed for a divorce in 2019 were tasked with splitting their investments in a manner that was fair to both parties. If you have a considerable number of stocks and investments, you should understand how to correctly split these investments before your divorce is finalized.

Make Sure You Have Access to Your Investment Accounts

Both parties in a marriage don’t always have the same level of access to investment accounts. If your spouse usually manages your investment accounts, it’s important that you obtain the same information and access once the divorce has been finalized.

For instance, ask yourself if you know about each bank, investment, and financial account that your marital assets can be found in. You should also know how these accounts are set up. The account could be in your name, be in your spouse’s name, or be jointly held. Some pieces of account information that you should have on hand include:

• Investment account name
• Login credentials
• Account numbers
• Contact information

You should also check if it’s possible for you to make a withdrawal from the investment account in question. If you’re unable to make a withdrawal yourself, it’s possible that you aren’t listed as someone who has access to the account, which is an issue that should be remedied before the divorce is finalized.

Understand How Taxable Investment Accounts Work

Splitting up assets between you and your spouse can be simple when it comes to the money in your savings accounts or the total sale price of your home. However, splitting up assets can be different depending on the type of investment account you have. If you have a taxable account that’s jointly owned by you and your spouse, you may need to send a letter to your financial institution that requests the joint account to be fully closed to make way for separate accounts that are opened under each person’s name.

Make sure that this letter goes into detail about how the investment account assets will be divided between you and your spouse. In the event that one spouse wants to open a new investment account at another financial institution, keep in mind that some assets can’t be transferred from one financial institution to another without incurring a sizable amount of fees, penalties, and tax consequences.

One example of a taxable investment account is a brokerage account. In some contentious divorces, it’s possible that one spouse will withdraw some assets from a joint account, which is why it’s important to address this problem as early as possible.

Take Taxes and Similar Penalties Into Account

Many divorcing couples choose to sell certain assets to more easily divide the money. However, selling assets can bring about tax consequences and other penalties. Let’s say that you and your spouse have placed some of your money into a long-term annuity investment. It’s possible to withdraw assets from an annuity account when one of the holders is at least 59 years and six months old. While you can withdraw your assets from an annuity account before you or your spouse have reached this age, doing so can incur sizable penalties that amount to 10% of the total withdrawal amount.

The timing of your divorce can also lead to unexpected penalties when attempting to withdraw or sell your investments. If the market is in a downturn, selling some of your assets could result in you receiving less money than you had anticipated. Retiring early from retirement accounts can also lead to substantial fees. One option is to keep all stocks and holdings for the meantime. The shares from these holdings can be split between both spouses without needing to sell them off.

Split Retirement Account Assets Correctly

If one or both spouses have retirement accounts that contain a sizable amount of assets, it’s important to understand that these assets must be divided evenly. In New Jersey, retirement accounts are considered to be marital assets, which means that the division of these assets must be equitable. Most couples include detailed information about what will occur with retirement account assets in the divorce filing or settlement agreement.

Keep in mind, however, that each type of retirement account works differently, which can lead to issues with how retirement assets are divided. If you divide an account at the time of the divorce, it’s possible that you would be tasked with paying fees and taxes on the proceeds.

Most pension plans, 401(k) plans, and 403(b) plans must go through a stringent process before you can properly divide the assets that are contained in these accounts. In order to split employer-sponsored retirement accounts, a Qualified Domestic Relations Order may need to be provided to the account administrator. The QDRO is a type of court order that allows the funds in a retirement account to be divided without incurring any penalties.

Each plan administrator can have different requirements for how assets in retirement accounts are divided. The non-employee spouse may need to open a similar account or create a rollover IRA account. Some accounts will allow the spouse in question to obtain a penalty-free distribution of their share of the assets.

If you have a standard IRA that must be divided, a QDRO is unnecessary. Instead, it’s possible to divide the assets based on the terms laid out in the separation agreement or divorce decree. However, fees can sometimes be applied to the splitting of assets for an IRA account. The only option for avoiding these fees is to roll the split funds into an entirely new IRA.

In the event that you want to receive a penalty-free distribution that allows you to effectively cash out your share of the assets, you can do so with a QDRO even if you’re below the age of 59 years and six months old. This exemption, however, doesn’t apply to IRA accounts. If you roll the assets over to a new IRA, you will still need to pay a 10% penalty if you withdraw funds before you reach the aforementioned age.

When to Seek Guidance From a New Jersey Divorce Attorney

Dividing assets during a divorce is rarely ever a stress-free situation. Unless each spouse agrees completely with the other, there may be some arguments and disagreements that make it difficult to determine who gets what. If you find yourself in this situation, consider seeking help from our New Jersey divorce attorney.

Our lawyers can help you navigate the asset-splitting process while also making sure that you understand all of the tax consequences and penalty implications that may apply. At the beginning of the process, our experienced lawyers will take a close look at all of your stocks, investments, and retirement accounts to gain a better understanding of how the assets can be divided and what this division will entail.

As mentioned previously, splitting certain assets could incur high fees and penalties, which is why it’s important to approach this process carefully. Our lawyers can also assist you in every other facet of your divorce. If spousal and child support matters have yet to be settled, we can help you reach an agreement or determine what your best legal options are.

If you’re about to file for a divorce and want to know how your stocks and investments will be split, call our New Jersey divorce attorney at (201) 343-0078 or email us at kelly@bertonrocco.com to learn what our legal representation can do for your case.