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How to Separate Assets in a Divorce

There are some simple things you can do in a divorce settlement that generally can save you a lot of money. So many times I review a divorce settlement before the parties have signed the divorce decree and notice one big mistake in relation to transferring assets: extra cost to just change assets from one spouse to another. This is one common mistake that can be completely avoided. When you have retirement and investment account assets in a divorce to divide, these accounts should be looked at as one whole big picture. Too many times each account is being split 50/50. This is a lot of extra paperwork, hassle, and extra cost that is not necessary. Let’s say you have the following retirement accounts in your marital estate to divide:

Total Wife Husband
Wife's 401(k) current $100,000 $100,000 $0
Wife's 401(k) old $200,000 $200,000 $0
Wife's Traditional IRA $100,000 $100,000 $0
Husband's Roth IRA $50,000 $0 $50,000
Husband's SEP IRA $25,000 $0 $25,000
Husband's Traditional IRA $25,000 $0 $25,000
Total $500,000 $400,000 $100,000

Rather than divide each retirement account in half, the wife can take her old 401(k) plan and roll it into a Traditional IRA. Once the money is in a Traditional IRA, she can transfer $150,000 to her husband’s IRA with a copy of the divorce decree and a transfer form signed by both parties. This transfer doesn’t cost anything and can be completed in a few weeks generally.

Total Wife Husband
Wife's 401(k) current $100,000 $100,000 $0
Wife's 401(k) old $200,000 $250,000 $150,000
Wife's Traditional IRA $100,000 $100,000 $0
Husband's Roth IRA $50,000 $0 $50,000
Husband's SEP IRA $25,000 $0 $25,000
Husband's Traditional IRA $25,000 $0 $25,000
Total $500,000 $250,000 $250,000

The other option that is much more complicated and I see happen too often is to take money from the current 401(k) plan and money from each IRA.

Total Wife Husband
Wife's 401(k) current $100,000 $100,000 $0
Wife's 401(k) old $200,000 $100,000 $100,000
Wife's Traditional IRA $100,000 $50,000 $50,000
Husband's Roth IRA $50,000 $0 $50,000
Husband's SEP IRA $25,000 $0 $25,000
Husband's Traditional IRA $25,000 $0 $25,000
Total $500,000 $250,000 $250,000

Generally, the fewer accounts you divide, the better. Anytime you divide a retirement plan that is attached to an employer, you need a Qualified Domestic Relations Order or QDRO. This is the legal document separate from the divorce decree that is necessary to divide retirement plans that are attached to an employer such as a 401(k) or a pension plan. QDRO’s cost money. For, a QDRO is a separate legal document, separate from your decree necessary to send to a plan administrator on a company retirement plan to divide the account.

So, anytime you can transfer money from one party to another from an IRA, the faster and less expensive the transfer should be. The goal in divorce is to separate assets with the least amount of cost and tax implications. Taking money from one IRA after the wife does a rollover in this example can save this couple a lot of time, money, and stress.


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Marital property, which is all assets and debts acquired during the marriage, is divided equitably, in a manner the Minnesota court believes is fair. Separate property is not considered marital property, and it includes property acquired before marriage, gifts and inheritances. The increase in value in this property is also separate property.
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