Whatever the reason for divorcing, emotions can run high around the division of assets. Most people understand division of assets is part of the divorce process but how does it actually happen?
Once the agreement is made (and let’s presume it is 50/50) accounts are separated based on that percentage, but does each account have to physically be divided?
The answer is no. Let’s assume there are two IRAs and that Husband has $50,000 and Wife has $100,000. The accounting is that each should have $75,000at the conclusion the division process. In this situation, once the decree is entered, Wife is to instruct firm holding the IRA to settle $25,000 to Husband. The firm holding the IRA needs the divorce decree.
401(k)and employer sponsored plans require a Qualified Domestic Relation Order (QDRO)often referred to as ‘quadro’. This process requires a separate document,written according to the employer plan sponsored summary plan description, thenentered to the courts, and approved by the plan sponsor. There arepeople, often attorneys who specialize in this process. There is a feefor each QDRO prepared and one is needed for each plan.
A similar process can be completed for the 401(k) plan. Using the same numbers as above, the QDRO would instruct the plan administration to settle the amount (with gains or losses attributable to that portion) to Husband.
Company benefits such as stock options are trickier and have different rules associated with division of the holdings. Because they cannot be divided, or awarded, to the non-employee spouse there are agreements to manage the vesting, exercising, and taxation associated with execution of options.
A qualified professional can assist in preparing asset division reports. A Certified Divorce Financial Analyst (CDFA®) is trained to assist you in the process of divorce by establishing budget reports, preparing asset division charts, and providing projections to make financial decisions. If you are contemplating divorce, in the process of divorce, or concluding the process of divorce, contact us to help you. Some decisions are irreversible – you’ll want to have the facts.
We can help. Call us at 602.923.9800 to schedule your complimentary initial consultation.
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