Certain marital assets are better suited for each spouse depending on their needs.
Does it really matter which marital assets you keep in a divorce?
The short answer is yes.
Generally speaking, a couple can have many different assets that were acquired during a marriage:
- A family home
- Rental property
- Traditional IRA's
- Roth IRA's
- Inherited IRA's
- Investment accounts or savings
- 401k's or other company sponsored retirement plans
- Personal belongings such as cars, boats, or collectibles
The list goes on and on and certain assets are better suited for each spouse depending on their needs.
The Marital Home
For example, I have written in the past about the pros and cons of keeping the family home. Keeping the home if one cannot afford the upkeep and expenses can lead to problems. If you need income, a different asset may make more sense such as an investment or savings account. You can't just take out a window and go down to the store to buy groceries with it.
If one needed income today, an IRA may seem like a good choice, however, if one is under 59 ½, they would be subject to a 10% penalty AND regular income taxes. (If one doesn't need income today and haven't saved enough for retirement, the IRA may be a better choice) Roth IRA's may be even better as they are more tax friendly.
Taking the rental property and then selling it could cause additional tax implications due to capital gains taxes and depreciation recapture.
Speaking of real estate, it is important to know the value of the property today. Many times, people just use the estimated value of an online site and aren't factoring in the $50,000 of work the house needs just to get it in shape to sell. Rental property comes with tenants and you must ask yourself if you are up for the late night calls about clogged toilets or leaking pipes.
Pensions plans have their own list of issues. Arriving at a fair value of a pension today takes a little more work than just looking at your IRA statement and seeing the value. Determining whether pension income at retirement should be split or if one should forego the pension and offset that with a different asset is a whole other issue.
IRA's can be split fairly easily but this must be done correctly to avoid any tax ramifications.
401k's and other employer retirement plans need a special document known as a Qualified Domestic Relations Order (QDRO) to have the ability to give all or a percentage of the account to the other spouse. This document should be drafted by an attorney with experience in QDRO's Is there an advantage of taking your spouse's 401k versus their IRA or should you take a non-retirement account instead?
Every situation is different and therefore, I strongly suggest one sit down with a Certified Divorce Financial Analyst™ (CFDA®) before making any decisions. Speaking with their CPA is also recommended to figure out any tax implications of the sale of an asset.
As you can see, there is lots to think about. Some assets can cost more to split, take longer to do so, and some are just plain easier.
Rick Fingerman, CFP®, CDFA™, CCPS®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS.