Splitting Investments During Divorce

by | Sep 15, 2023 | Videos

Things didn’t work out with your spouse, and now you need to figure out how to split your investments during divorce.

Casey has got you covered in this week’s video. He explains what happens to joint brokerage accounts, cost basis information (which affects taxes), retirement accounts and IRAs.

Going though a divorce is a stressful situation. And figuring out how to split your investments during divorce can be complicated. Tune  in to this week’s video if you need help getting it all sorted out.

Show Notes

7 Tips for Going Through a Divorce – Mullooly Asset Blog

Pay Down Debt or Save More Money – Mullooly Asset Show

Splitting Investments During Divorce – Mullooly Asset Show – Full Transcript

**Click here for a full downloadable PDF version of this transcript**

Casey Mullooly: What happens to your investments when you get a divorce? Keep watching to find out.Welcome back to the Mullooly Asset Show. I’m your host for today, Casey Mullooly. Happy to be back with you for episode 353.

So, what happens to your investments when you get a divorce? Sometimes, things don’t work out and you and your spouse decide to go your separate ways, but you’ve saved and invested along the way and now things can get messy. So, just want to walk through some things to think about here.

The first thing is to consider how the assets are held, what type of account they’re held in, and how that account is titled. If you own investments, stocks, bonds in a joint brokerage account, you want to pay attention to how that account is titled.

If let’s say Harry and Sally have a joint brokerage account, it’s joint with regard to survivorship, and they invested in a stock, they bought it for $10,000, both of their individual cost basis is going to be $5,000, which is going to be important in a little bit. So it’s $10,000, they own it jointly, things didn’t work out, they’re going to get a divorce, the stock at the time of the divorce is $100,000.

So, what happens now? Well, it’s going to depend on their divorce agreement, but let’s say that Sally gets the assets in the brokerage account. It’s important to note that for joint brokerage accounts for divorce, there’s no step up in cost basis. That is for when someone passes away and you inherit the account.

So, her cost basis is going to be $10,000, it’s now worth $100,000, so she’s going to have taxes whenever she decides to sell that investments. Hopefully, they decide to just transfer the assets, they close the joint brokerage account, she opens her own individual account, and they transfer the stock right over there to avoid any unnecessary taxes along the way. So, that’s for brokerage accounts.

What about retirement accounts? Not going to get into specifics here, but for workplace retirement accounts like a 401(k), 457, 403(b), you’re going to need a QDRO, Q-D-R-O, a Qualified Domestic Relations Order.

That is going to tell you and give directions on how to split those assets up. Usually, the spouse without the retirement plan sets up an IRA and they roll the assets directly to that IRA. Even if you’re under 59.5, assets distributed via QDRO avoid the 10% early withdrawal penalty, so there’s that.

Lastly but not least, just to make things extra complicated, QDROs do not apply to IRA accounts. So that, again, is going to be divvied up based on your individual divorce agreement.

So, just to recap some things to consider if you’re going through a divorce: be careful about how your accounts are titled, and how the assets are owned, no step-up in cost basis, QDROs for retirement plans, and no QDROs for IRAs. So, it can be a complicated time getting things sorted through a divorce.

There’s a lot of moving parts to consider, so please consult with your attorney, first and foremost, and your advisor or CFP professional and they’ll be able to help you out and get things sorted. So, that’s the message for this week’s episode. Thanks so much for tuning in. We’ll be back with you next week.



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