A client came into my office and looked like a world of woes was just placed on her shoulders. He husband (who had recently asked for a divorce) had just told her that she was not entitled to any of his 401K because it was in his name alone.
Um… Wrong….
Strategically dividing assets in a divorce means first knowing what you are legally entitled to, and then adding an understanding of what that asset means to your future financial security.
Before we go any further, we need to discuss the differences between Separate and Marital Property and why that’s critically important to you. In my experience, this is an area that is not well understood by most people.
States differ in some of the details, but generally speaking, Separate Property includes:
- Any property that was owned by either spouse prior to the marriage
- An inheritance received by the husband or wife (either before or after the marriage)
- A gift received by the husband or wife from a third party (your mother gave you her diamond ring)
- Payment received for pain and suffering portion in a personal injury judgment
However, separate property can lose its separate property status if you commingle it with marital property or vice versa. For example, if you re-title your separately owned condo by adding your husband as a co-owner or if you deposit the inheritance from your parents into a joint bank account with him, then that property will most likely now be considered marital property.
All other property that is acquired during the marriage is usually considered marital property regardless of which spouse owns the property or how the property is titled.
Marital property consists of all income and assets acquired by either spouse during the marriage including, but not limited to: Pension Plans; 401Ks, IRAs and other Retirement Plans; Deferred Compensation; Stock Options; Restricted Stocks and other equity; Bonuses; Commissions; Country Club memberships; Annuities; Life Insurance (especially those with cash values); Brokerage accounts – mutual funds, stocks, bonds, etc; Bank Accounts – Checking, Savings, Christmas Club, CDs, etc; Closely-held businesses; Professional Practices and licenses; Real Estate; Limited Partnerships; Cars, boats, etc; Art, antiques; Tax refunds.
So how should you strategically work with your ex in dividing assets? There are a number of factors you should discuss with your CDFATM (Certified Divorce Financial Analyst) before proceeding with asset division. These considerations revolve around:
- What will the future value of the asset yield?
- What tax consequences may result from that asset?
- Will your settlement package provide enough cash flow as well as invest-able assets?
- Can you afford the upkeep on the asset? (e.g. the family home).
- Is the asset part of a bigger picture (e.g. necessary to continue income-producing activities)
In the end, approaching the process of dividing assets logically – by taking out the emotion – will yield you a more financially sound settlement to provide for your future with more security.
