How Does Investment Get Divided In Divorce Cases?
Money that you invest before and after your marriage is likely to be split in case of a divorce. Like many other marital assets, investment cash is also up for grab in divorce cases. Although you can dictate some terms in a marital settlement agreement, you have to split the cash according to state law.
Community Property vs. Equitable Distribution States
The law of the state you live in will settle what would be the ratio of investment dividend. In some states, you and your spouse will be eligible for equal interest in assets; thus the split is 50/50. In some other cases, it would be upon the judge to decide a fair distribution. The court will take a few considerations before it gives a final decision. Generally, the court will look into some facts like which one of you need the cash more and personal contributions. Based on the findings, the investment cash may be split into 55-45 or 60-40 ratio.
Marital Assets vs. Separate Assets
An investment could be joint or separate property of the couple in concern. Separate property is usually acquired by one of the spouses as a gift or inheritance. In divorce cases, it is immune to division. Assets acquired before marriage are also considered separate property.
However, in some states assets accrued during the marriage are also considered marital property. For example, if your investment of $50,000 during the marriage is increased by $50,000, the latter is likely to be divided.
In some other cases, commingling separate investments will also make them marital property. If you get into this muddle by choice, you will have to be ready for a split.
Distributing Assets
Marital assets are distributed between each spouse. Suppose the total value of your marital asset is $500,000. Then you will get $250,000 and the rest will go to your spouse.
You or the spouse may relinquish his or her ownership right on the marital home. Most of the times courts prefer to divide the investments rather than giving the whole amount to one spouse. However, if the investment is not enough to equally divide between both of you, the court will compensate one of you with other marital assets to close the gap.
Retirement Investments
Retirement investments are the most complicated. If you decide to cash in, the amount will be axed by penalties and taxes. In order to avoid this, you should divide them following the terms of a Qualified Domestic Relations Order. Moreover, federal law doesn’t allow plan administrators to make distributions to anyone except the earning spouse.
However, QDROs can help you effectively evade this role. As well as that, the spouse who was the primary holder of the account will not be saddled with taxes or penalties. Therefore, the other spouse will be subject to taxes and penalties if she cashes out rather than depositing it in her retirement account.