Dividing the AssetsThere is, however, one important exception. Within the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) almost all assets typically are divided equally.
Typically, everything you and your spouse acquired from the day you were married is subject to division. The exceptions are individual inheritances, gifts to an individual spouse and assets acquired before marriage. When assets are divided, the court considers each spouse's earning potential, the length of the marriage, and each spouse's contribution to building household assets.
Dealing with DebtIn addition, include the payment of debt as part of the settlement. Take on the responsibility for the debt yourself, if necessary, and take a share of the assets to pay the debt down.
If you live in a community property state, you will be responsible for half of all debt in jointly held accounts and, in some cases, for half of a spouse's individual debt as well. If you don't live in a community property state, you remain responsible for your individual debt (but not your spouse's) and any debt in jointly held accounts. You should seek legal advice on how to handle your finances, during the separation period, before your divorce is finalized. As soon as the divorce is finalized, freeze your joint accounts and ask your creditors to reclassify them as individual accounts.
Your Retirement AssetsTo claim a share of a spouse's 401(k) or pension benefit, you need to obtain a court order called a Qualified Domestic Relations Order (QDRO) and provide it to your spouse's plan sponsor before distributions are completed to your spouse, which prevents your spouse from making withdrawals. You and your spouse can decide to not divide your 401(k) assets or pension plan benefits, but you should make this agreement in writing and include it as part of the settlement to prevent the courts from declaring the money divisible.
Money in your 401(k) or pension plan may legally be divided during a divorce. The divisible amount typically begins to accumulate on the day you are married and ends on the day you are divorced.
If you find yourself faced with divorce, it is essential to protect your financial future. Enlisting the help of an attorney and carefully monitoring the process can ensure that your interests are considered and that you won't need to revisit the proceeding later on.
Jeffrey Thatcher is a CERTIFIED FINANCIAL PLANNER ™ and Director of HVFCU Financial Services, the investment division at Hudson Valley Federal Credit Union.
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Hudson Valley Federal Credit Union and HVFCU Financial Services are not registered broker/dealers and are not affiliated with LPL Financial. This material was prepared for Jeff Thatcher’s use.
Portions of this material prepared by Standard & Poor’s Financial Communications.
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