Imagine you worked hard for years and saved a comfortable nest egg. Now you are getting divorced and have to split your assets with your soon-to-be ex-spouse. Under the law, financial investments include mutual funds and stocks, retirement accounts and bonds, and other investments or property of financial value. The rules on how these assets will be divided vary from state to state.
It is not easy to divide financial investments in case of a divorce, but it’s not impossible. There are some basic principles to remember when working towards an equal division of marital assets during a divorce. If you’re going through or considering a divorce, you should speak with an attorney familiar with financial planning and investing. Read on to learn how financial investments are divided in a divorce.
Separate Property
Separate property is also known as “non-marital” property, which means it is not part of your marital estate. It includes any assets you had before your marriage, such as savings accounts or investments, as well as any gifts or inheritances given to you during your marriage. It is excluded in from the division. The owner’s spouse may choose to dispose of as they please. Remember to keep the investment distinguishable from other investments.
Community Property
Suppose you live in a state that divides community property equally (like Arizona). It means that each person gets half of everything they own together. If you have joint accounts, then those are divided equally as well.
Mixed Assets
In some cases, the value of separate property increases during the marriage, which is called “increased value” or “increased enjoyment.”
In order to determine whether a spouse has an increased enjoyment of the separate property during the marriage, there must be proof that the other spouse made efforts to increase its value.
The contributing spouse may claim an increase in value as community property in these circumstances. For example, the stock ownership depends on when it becomes vested. Separate property includes all unvested stock a spouse had before marriage and any share vested during marriage. The property remains separate property when its value increases in the market.
Financial Investments
If you’re dividing pensions or retirement accounts, you’ll need help from an administrator to draft the Qualified Domestic Relations Order. It’s important to understand that the division of these assets depends on the investment type.
For example, stocks are generally considered separate from other investments, such as bonds and money market accounts. Stocks are also known as “equity” in the legal sense because they represent ownership of a company or corporation. The stock division depends on how the shares were acquired and whether both spouses held them during the marriage.
Suppose a divorce involves only one spouse working at the time of separation. In that case, the value of their 401(k) or another retirement plan may be considered marital property and split accordingly. However, if both spouses worked at some point during their marriage—or even if only one spouse worked during a marriage—then any property acquired through work will not automatically be considered marital property unless there is also an agreement between spouses about how this property should be divided.
Financial investments sometimes are divided in two ways: one spouse takes the real property while the other takes the financial assets or divides them into equal shares. No matter the decision, assess the tax consequences and disadvantages.
When divorcing, financial investments can become a contentious issue. The judge who manages the division of finances will determine how much each spouse contributed to the marriage and their current financial situation. This way, the judge can ensure that both parties are treated fairly regarding their contributions to the marriage, but it also protects against any claims of fraud or abuse.
Date of Separation
The date of separation is the date a couple decides to separate. It can be done by filing for divorce, or if a couple has decided to end the relationship, they may file for a legal separation. Any investments made after separation are separate property as long as the money funded the investment was from separate property.
Divorce is never easy. The worst part comes after the divorce when the family assets and investments are divided. What does the law say about dividing financial investments in a divorce? Well, it depends on many factors, including the type of investment, how the ownership was determined, and how long you held different types of investments. Each case is unique, which makes this topic very complicated and confusing. Whether or not you have divisions between you and your ex when divorce comes around, it would help to understand how it plays out. Plus, it will give you a better chance of getting a fair share.
