Divorce and the division of assets is a common reality in the United States. Understandably, people are concerned about the tax implications involved in dividing their marital property. Do spouses have to pay taxes on the transferred assets? How do you divide up retirement accounts, stocks or mutual funds? This article will seek to clarify some of these questions and give you some peace of mind as you go through your divorce.
Retirement funds acquired or increased during the course of the marriage are subject to division upon divorce. You cannot assign your retirement benefits to a third party. Only you and your spouse may share those accounts. How much each of you split depends upon the amount of contributions made with income acquired during the marriage.
The division of these assets can get very complicated because you need to apportion based on contributions and accumulated interest. But, to simplify the process, the court can issue a Qualified Domestic Relations Order to lay out step-by-step instructions on how to divide these accounts. QDRO's are a useful tool to eliminate the potential for discord between ex-spouses.
The home is another major asset that is critical to retirement planning. Upon divorce you have three options to divide the home:
- You can buy out your ex-spouse's interest or vice-versa.
- You can sell the home and split the money in the future.
- You can sell the home and split the money now.
If you have a will or trust that names your spouse as a beneficiary, some states automatically revoke this testamentary instrument, but don't rely on this assumption. You may want to speak to your family law attorney or estates attorney to determine if you need to modify your will and trusts instruments. Failure to do so could mean that your ex-spouse remains the primary beneficiary of your estate.
If you are going through a divorce then you may want to sit down with an attorney. Be forthright with them regarding your income and assets. An attorney can go over your assets and explain your possible exposure and how to resolve these matters.