Five Things to Consider When Dividing Investment Accounts

Dividing Investment Accounts

The division of assets is one of the most complex aspects of a Pennsylvania divorce. Some assets are easily divided. For example, savings and checking accounts can be split in two. However, retirement and investment accounts are different; dividing these accounts can result in penalties or tax consequences.

You want to protect your investment. Here are three suggestions that can help Pennsylvania couples divide investment accounts during a divorce.

1. Know your investments. Start by making an inventory of your investment holdings. The list should include all joint or individually owned stocks, bonds, checking accounts, savings accounts, brokerage accounts, pensions, retirement funds, employment benefits, and insurance policies. If you have substantial investments, you may need the assistance of a forensic accountant to help you evaluate your assets.
2. Look at each account and its cost basis. A stock with a value of $50,000 may be worth significantly less once you consider taxes on capital gains. Or, it may be worth more because of capital losses that could reduce your overall tax debt. Determine the present day value of each of your assets.
3. Consider the benefits of dividing retirement accounts. It may be easier for each spouse to keep his or her own IRAs and 401(k) plans. However, most retirement assets can also be transferred from one spouse to the other without an immediate tax penalty.
4. Incorporate the property division into your divorce decree. Make sure that the details of the transfer are listed in the divorce agreement.  Check with the financial institution managing the account for specific wording requirements. Some financial institutions also require a divorce agreement to reference each retirement accounts account number and trustee. Do not divide the accounts until after the divorce is final as this could be seen as a taxable distribution subject to a ten percent penalty.
5. Use a QDRO. Retirement plans offered or administered are governed by the Employee Retirement Income Security Act (ERISA). These assets are divided using a court order called a Qualified Domestic Relations Order or QDRO. A QDRO allows money to be transferred to an ex-spouse’s account without immediate tax consequences and without an early-withdrawal penalty. 

Do you have questions about fair division of assets? Call Petrelli Previtera, LLC at 866-465-5395.